FJ Benjamin's net profit crashed 67% to SGD4m

Market in North Asia remains gloomy.

According to Maybank Kim Eng, FJ Benjamin (FJB) reported its third quarter results where 9MFYJun13 revenue of SGD283.8m (-6% YoY), and net profit of SGD4m (-67% YoY). 9M revenue and net profit makes up 72% and 58% of our FYJun13F forecast. Situation in North Asia remains gloomy owing to Chinese government’s clamp down on luxury timepieces and reduced tourist spending across the board. 

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We expect a couple more quarters of slowdown in sales before any turnaround could be expected. We roll forward our valuation, and peg our TP to a lower multiple of 13x 

According to the Federation of the Swiss Watch Industry, Swiss watch exports to China dropped 26% YoY in the first quarter this year to SGD427m, where exports to Hong Kong fell 9% YoY. FJB’s North Asia sales are in-line with industry decline, dropping by 26.4% YoY to SGD48.1m, while ASEAN sales is stagnant at  SGD229.2m (-0.8% YoY).

Store expansion continues. Despite tapered earnings, FJB is committed to reach its target of 210 stores by end of this fiscal year. Cash conversion cycle has been extended to 220 days (+11% YoY).

Net gearing has also risen to 0.54x owing to store expansion. A ray of sunshine shines through. FJ Benjamin’s prized brand, Ramous, has signed a franchising agreement with a Chongqing-based Company named Budy Import & Export Trading Co. Ltd, owned by Anderson Wang.

Under the agreement, Budy will open a total of 27 stores in key cities in China including Shanghai, Beijing and Chengdu by 2017. The first store is slated to open in Chongqing in midSeptember.

Anderson Wang has had the experience needed as with franchises such as Porsche Design and Georg Jensen under his helm. FJ Benjamin is also in talks to sign another franchise deal in the region. So far, Raoul makes up about 5% of sales.