Why FJ Benjamin's profits nightmare may not be over yet

Consumer spending in Singapore to remain cautious.

According to OSK-DMG, forex losses on top of a 2.0% y-o-y drop in revenue led to FJ Benjamin posting a 4QFY13 PATAMI of SGD0.4m. Analyst expects the near term prospects to be challenging amid persistently soft consumer spending in certain markets.

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Outlook to remain challenging. Consumer spending in Singapore is expected to remain cautious amid rising rentals and staff costs, which could adversely affect profitability. Demand for luxury timepieces in China and tourist spending by Chinese visitors in Hong Kong are likely to stay weak.

However, this would somewhat be offset by continued healthy demand in Indonesia. Meanwhile, FJB plans to continue to opennew outlets in Indonesia to ride on the nation’s healthy domestic demand. Some of these new stores would be its planned VNC outlets.

New luxury brands to perk up revenue growth. Despite the challenges, FJB plans to focus on its luxury fashion segment, which has proven to be relatively resilient.

The group has secured distribution rights for Tom Ford, Valextra and Superdry and plans to open new stores for these brands at upmarket shopping malls in Singapore and Malaysia.

While these new brands may help expand its revenue, the higher rental costs and absence of exceptional gains will dampen the growth. As such, we expect flat PATAMI growth for FY14.