EpiCentre’s H2 2011 sales dragged by iPad2’s late launch

We met up with the management of Epicentre following its 2HFY11 results, which came in below expectations. There were no earnings to speak of, while revenue of S$70.5m was 12% lower than our estimates. Earnings were dragged lower by one-off start-up costs for new outlets and 24% HoH lower sales due to the late launch of the iPad2.

Key takeaways from the results briefing: 1) One-off start-up costs for feasibility studies in China have been absorbed; 2) 2H11 sales fell due to the iPad2 which was only out on 27Apr11 hence only two months sales contribution; 3) 1st Shanghai store will finally open on 15Sept11; 4) Two new concept accessories stores will be opened in Singapore.

A final 4S¢ (2S¢ special) dividend has been declared. Coupled with 1S¢ in 1H11, dividend yield is attractive at 10.5%. We cut our FY12 revenue by and PATMI by 21% and 49% to reflect the more uncertain economic outlook as well as lower ASPs of newer products. Based on our revised FY12F earnings, we derive a new TP of S$0.60 (previously S$0.68), pegged at 9x FY12F P/E. Maintain BUY.

Lower 2H11 sales due to the iPad. Sales of the iPad1 started to slow in Feb11 in anticipation of the newer model and stocks of the iPad2 had been initially constrained. iPad sales make up ~18-19% of the Group’s total Apple product sales with EpiCentre commanding ~30% market share of the iPad market in Singapore (Jun11). CPUs represent the highest margin Apple product with EpiCentre having a 40% market share in Singapore.

Store expansion update. The Group currently has six stores in Singapore and five in Malaysia, including two that just opened in June 2011. In FY12, it plans to open two stores in Singapore, two in Malaysia and five in China.