INVESTMENT MERIT
On-going store
restrategisation plans. The group has started to restrategize its branches
(by shutting down unprofitable branches and opening new branches in strategic locations
as well as refurbishing existing stores) since 1H12. The ability of the group
to identify underserved pockets of markets thus far and together with the
strong gold prices have resulted in recording a strong 3-year CAGR of 20.4% and
27.1% in turnover and net profit respectively. Moving forward, the group
intends to shift its focus to the higher-income target market in conjunction
with its ongoing store refurbishment plans.
Gold prices on the
rise. With gold price back on the rise (USD1731/oz at the time of writing),
we believe Tomei is well in place to benefit from its large inventory holdings raked
up in 1H12 (RM355.6m vs RM255.3m for FY11) and upcoming store openings as
almost 90% of its RM397.4m current assets consist of gold, jewellery and
others.
Decent yield.
Although Tomei does not have a dividend policy, the group has consistently
declared an average of 20% in payout ratio since its inception. By assuming a
similar payout ratio for FY12, the group is expected to declare a DPS of 3.8
sen, translating into a decent dividend yield of 5.2%.
Decent upside as
well. Based on our projected net profit of RM41.0m in FY13, Tomei is
trading at a PER of 2.5x, a significant 44% discount to the industry average of
4.5x. Our Tomei fair value is set at RM0.88, based on a targeted FY13 PER of
3.0x. The discount is justifiable in our view, given the group’s gearing of
1.03x, which is much higher than the industry’s average gearing ratio of 0.31x.
Nevertheless, if the company manages to reduce its gearing meaningfully, we
believe it would warrant a rerating.
COMPANY UPDATES
In 1H12, Tomei opened eight new outlets located at Setia Mall,
Paradigm Mall, Alor Star Mall, Mentakab Star Mall, Johor Premium Outlet and
Aeon Ipoh.
Tomei has also refurbished four outlets during the same period,
with five more due for refurbishment in 2H12.
In November 2011, Tomei launched its GoldSilver2U.com website,
which allows consumers and investors alike to purchase gold and silver bullion
around the clock.
TECHNICALS
• Resistance: RM0.77 (R1), RM0.84 (R2)
• Support: RM0.70 (S1), RM0.67 (S2)
• Viewpoint: S-T (Neutral), M-T (Bearish), L-T (Neutral)
Comments: Tomei has formed a falling wedge pattern since the
start of the year denoted by the converging trend lines. Having rebounded from
the support line at RM0.70, the share price may look to retest the resistance
at RM0.77 in the short term.
BUSINESS OVERVIEW
Tomei Consolidated Berhad was founded in 1968 as a small
scale jewellery designer and manufacturer and has since grown its retail network
to 75 outlets and five retail brands. At present, Tomei is an integrated
jewellery designer, manufacturer, wholesaler, and retailer.
The group has presence across the region, namely Malaysia,
Vietnam (sice 2007) and China (since 2009).
The five retail brands under Tomei are Tomei, My Diamond,
T.H. Jewelry, Le Lumiere and Goldheart, with different target markets each.
GEOGRAPHICAL
SEGMENTS
Tomei Consolidated Berhad derives its revenue from four main
geographic segment, ie. Malaysia, Vietnam, China & Hong Kong and other
export markets. The 1H12 revenue breakdown by geographic segments are:
• Malaysia (93.1%)
• Export Markets (4.5%)
• China & Hong Kong (2.1%)
• Vietnam (0.3%)
Source: Kenanga
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