Sunday, 28 June 2015

Stock Review – FIAMMA (6939) (FIAMMA HOLDING BERHAD)


image source from Big Chart Marketplace


image source from Big Chart Marketplace
Bursa Malaysia - 6939
Bloomberg - FHB:MK
Yahoo - 6939 .kl
Webpage - http://www.fiamma.com.my/

Key Value Investor Criteria: -

Description
Value
Criteria
Point
Price to Tangible Book Ratio
0.73*
< 1
5/5
Stock Valuation
CAPM => 3.12%
Return (2008-2014) => 18.59%
Undervalue by 15.47%
CAPM < Return
5/5
Return on Asset
7.86*
> 0
4/5
Return on Common Equity
12.17*
> 0
5/5
Quick Ratio
1.61*
>1
4/5
Long term Debt / Total Capital
30.69*
<50%
4/5
Continue Dividend over Past 10 Years / Since Inception
Yes
Yes
2/2
Cash From Operation
Positive > 5 years
Positive
5/5
Total Point


34/37
Note:
 *            Data obtain from Bursa Marketplace on 27/6/2015

By scoring 34/37 (91.9%), we will look into the annual report and the latest quarterly report of FIAMMA before making the decision to buy the stock.

By looking at the stock valuation using CAPM method FIAMMA is able to provide 3.12% return which is quite high. Any stock provide about 10% return is a good stocks. Besides that by looking at the stock historical price, it is currently provided 18.59% which means that the stock is currently undervalue by 15.47%.

However with such a good valuation and ratio, as a value investor we always look into the annual report, quarterly report and any announcement before making any investment decision.

Company Profile

FIAMMA consists of two main business segment as followes:

1)   Trading and services – 84.3% of total revenue (2015 2Q report)
2)   Property Development – 15.2% of total revenue (2015 2Q report)

1) Trading and services

This segment is the main business for FIAMMA. FIAMMA distribute various brands of home appliances, sanitary ware products, home furniture and medical devices & healthcare products. Some of the well know brand distributed by FIAMMA are kitchen appliances:-ELBA, electrical home appliances: - FABER, MAYTAG & Whirlpool bathroom and sanitary ware:- Rubine & Haustern, healthcare product :- Omron, Spirit & Tuttnauer.

With the government of Malaysia implementing GST effective on April 2015 it will affect the sales and the nett income of the trading and services segment. However with the current blooming property industry in Malaysia which had seen many properties is expected to be completed in 2015 and 2016. These will cause an increase in sale in the home appliances, kitchen appliance and bathroom & sanitary ware product. This might indirectly increase the sales for FIAMMA’s trading and services segment.

2) Property Development Segment

FIAMMA is just enter into property development market in 2007 when FIAMMA acquired 5 parcels of lands in Kuala Lumpur. In 2008 FIAMMA acquired 3 more parcels of lands and two property development companies which are Uniphoenix JayaSdn Bhd and Oaksvilla Sdn Bhd.

FIAMMA launched its first project in 2012; Menara Centara in Jalan Tuanku Abdul Rahman, Kuala Lumpur. The project complete in early 2015. Currently FIAMMA has completed two projects: Menara Centara, Kuala Lumpur and Taman Kota Jaya, Johor. There is one ongoing project : VIDA Height, Johor. With many parcels of land still available in FIAMMA land bank including their existing warehouse in Bandar Manjalara, the property segment is expected to be growth in the near future.

PROS:

  • There are many residential properties in Kuala Lumpur and Johor are expected to be completed in 2015 and 2016. These will increase the sales of home appliances, kitchen appliances and bathroom & sanitary ware in these areas. FIAMMA might had increase their sales as well due to these reason.

  • FIAMMA had many lands in Kuala Lumpur and Johor (Malaysia prime location for property development)

  • FIAMMA is planning to move their warehouse to Klang which is nearer to the port, port Klang which will reduce the logistic cost to shift the goods from the port to the warehouse.

  • FIAMMA is expected to rent out the extra space at their new warehouse to third partly, these will increase their revenue.

CONS:

  • GST is implemented in April 2015, these is expected to affected the sales and net profit of FIAMMA for both trading & service and property development segment.

  • The depreciation of Ringgit Malaysia might reduce the net profit for FIAMMA since its had subsidiary in Singapore and import their product from other country to Malaysia. Besides that, it also had account payable denoted in USD.

Financial Statement

From most recent quarterly report end 31 March 2015 there is an increase in property, plant and equipment (PPE) from RM 35,627,000 to RM 67,479,000 (89.4% increase), these is due to FIAMMA going into SPA to purchase about 113,910 sqft of land for about RM 430.00 per sqft near Kuala Lumpur. While I would say these is a fair dual and the purchased is expected to be completed in year ending 30 September 2015. RM 4,898,130 had pay as deposit for the land purchase and RM 44,083,170.00 is expecting to be payable within 120 days from the date of SPA. The translation is completed 30 April 2015.

There is an increase in borrowing from RM 68,936000 (30 Sept 2014) to RM 91,084,000. The increase due to the increase of non current term loan which mean the company had more than 12 months to pay off the loan. With the current cash position of RM 111,459,000 (March 2015), the company is able to pay off the loan anytime. The increase of the term loan is most likely cause buy the purchase of 2 lands 30 April 2015.

PROS:

  • FIAMMA had reduces its current liability and increasing the non- current liability between the period Oct 2014 to April 2015. This might be a good move by the management as there are expecting the central bank to increase the interest rate.

  • FIAMMA had completed to purchase to more lands in Kuala Lumpur with a reasonable price of RM 450 per sqft.

CONS:

  • GST is implemented in April 2015, these is expected to affected the sales and net profit of FIAMMA for both trading & service and property development segment. This effect will shown on the Q3 report.
  • Until June 2015, there are still 32,830,468 warrant expiring 26 November 2018 is not exercise when it is exercise the will dilute the earning per share.