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Tuesday, September 16, 2014

Fiamma Holdings Berhad - A Beneficiary Of The Housing Boom

Fiamma is listed in Bursamalaysia. Not the darling counter so far but it is trending up gradually. I just came across the research paper published by OSK/RHB Research house, which I record here for my own reference.
The valuation is not demanding and will by worth monitoring so that I may buy some on weakness.

  Fiamma stands to benefit from the housing boom of  the last 2-3 years.While  its  distribution  business  is  experiencing  annual  resilient  growth of  4-13%, property development is a new growth driver.  A  few  strategic land parcels  are  now  held  at low  costs, which mean  high development margins. The company is  also in a net cash position. Based on our SOP valuations, the stock could be valued at MYR3.20-3.30.
  Distribution:  a  resilient business. Fiamma distributes home appliances and  has  a  property  development  division,  which  indirectly  and  directly ride  on  the  local  property  cycle  respectively.  Despite  the  housing market’s  mini  ups and  downs,  its  distribution  segment  has  achieved  4-13%  growth  per  annum  previously.  It  has  been  strong  in  the  home appliances  market  with  a  wide  distribution  network  nationwide.  This segment typically yields 30-40% gross margins. 
  Property  –  a  new  source  of  growth.  Fiamma  will  see  a  new  growth driver  led  by  its  property  development  wing.  The  market  may  not  be aware of this  business  as yet,  but it  contributes  ~25% of total turnover.While  Fiamma’s  existing Centara project is expected to be completed in Oct/Nov 2014, it has >MYR1bn worth of projects in the pipeline, including MYR600m  high-rise  developments  at  Jalan  Yap  Kwan  Seng  (Kuala Lumpur)  and  the  MYR400m VIDA residenz (Johor Bahru). By end-2015, management  also  plans  to  utilise  its  land  behind  Wisma  Fiamma  for development after an existing warehouse there is moved to Klang.
  Low  land  costs  creates  RNAV  re-rating  angle.  The  property development  division  gives  gross  margins  of  30-35%.  This  trend  is expected to continue as Fiamma’s landbank is carried  at low book costs.The most significant contributor to RNAV is the 1.4-acre Jalan Yap Kwan Seng land, with a  land cost of only MYR631psf. The current market price for land parcels in the vicinity is already going at above MYR3,000 psf.
  Net cash now.  Fiamma  is currently in  a  MYR54m  net cash position. We expect it to gear up gradually to ~20-30% over the next two years in view of its upcoming slew of high-rise projects. Dividend payout should remain at about 30%, translating into a decent yield of almost 4%.
  MYR3.20-3.30  FV.  Fiamma’s  land  parcels  are  in  deep  value  while  the distribution segment provides stable income growth.  Based on our SOP valuations,  the  stock  could  be  valued  at  MYR3.20-3.30.  It  is  currently trading at an undemanding 6.2x FY15f P/E.



A Beneficiary Of The Housing Boom
Company background
Fiamma started up marketing mainly  the  Elba  brand of electrical home appliances  in 1997. Since then, the company has managed to  pick up a number of other brands to widen its distribution reach. Key brands currently carried include  Elba, Rubine, Faber, MEC,  Tuscani,  Haustern  and  EBAC  Home.  It  also  handles  agency  brands  (sole distributorship)  such as  Omron, Whirlpool  and  Braun.  Given the number of brands  it carries,  Fiamma  has  a  wide  product  range  to  cater  for  the  mass  and  high-endmarkets.  These cover  kitchen appliances, pre-fabricated kitchen cabinets, electrical home appliances, bathroom accessories and sanitary ware.  Currently,  the company has  a  nationwide  distribution  network  and  these  products  are  distributed  mainly  to electrical shops/outlets and hypermarkets.

While the distribution business has been generating resilient earnings, management decided  to  have  property  development  exposure  a  few  years  ago.  In  Dec  2008, Fiamma  completed  the  acquisition  of  two  subsidiaries  –  Uniphoenix  Jaya  SB  and
Oaksvilla  SB  –  that  own  landbank  in  Kota  Tinggi,  Johor.  Note  that  property development  is  not  a  new  venture  for  the  company,  as  these  subsidiaries  were previously  owned  by  its  founders.  Over  the  years,  Fiamma  acquired  several  other
land parcels, such as the 1.12 acres at Jalan Tuanku Abdul Rahman and 1.4 acres at Jalan  Yap  Kwan  Seng.  Currently,  the  company’s  distribution  and  property development  segments  contribute  75%  and  25%  of  the  company’s  earnings
respectively.

Fiamma is now managed by Mr Lim Choo Hong, who is the CEO/group MD of the company.  Choo Hong, Mr  Lim Soo Kong (non-executive director)  and  Mr Ngo Wee Bin are the founder members and major shareholders. Choo Hong has more than 30 years of experience  in  dealing in home appliances. He also has  more than 15 years of expertise in property development.


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