KUALA LUMPUR: Multi Sports Holdings Ltd, a shoe soles maker based in China but listed on Bursa Malaysia, expects growth in sales volume this year to reverse the 10%-29% decline across its four types of shoe soles last year.
“We manufacture according to orders, and from the orders we received we expect to achieve a volume growth this year,” its finance manager Wang Cai Yun told The Edge Financial Daily last week.
However, Wang admitted that it’s still difficult to gauge in terms of bottomline performance, due to rising material and labour costs. “This has put a lot of pressure on us. It does not help that competition is strong,” she added.
As the sales of shoe soles correlates with shoe sales, Wang expects the industry to remain challenging in the near term as shoe makers continue to de-stock their inventories with price discounting.
Given the challenges in the shoe industry, Multi Sports started its effort to diversify into men’s apparels and accessories in the second half of 2012. This new business segment began producing profits in the first quarter ended March 31, 2014 (1Q14).
“If we keep doing only shoe soles, we are bound to reach a bottleneck. Also, the shoe soles we produce … no one knows who the manufacturer is; whereas for fashion apparels it is different, we have our own brand,” she explained.
In 1Q14, sale of fashion apparels and accessories under its own brand “Evidoma” recorded revenue of RM15.1 million, accounting for 17.5% of group revenue of RM86.3 million. The segment’s profit meanwhile came in at RM4.37 million, equivalent to 18.5% of the group’s total profits of RM23.64 million.
The new segment yielded a gross profit margin of 32.3%, higher than that of its sports shoe soles of 21.2%.
Wang said while the group plans to expand its new business segment, the manufacturing of shoe soles remains as the core business.
“Our investment in the fashion apparels segment is still small. We would need to reach a certain model or scale before we decide to invest heavily or not, such as engaging a brand ambassador,” Wang said, adding that its apparels are currently sold at 60 over shops in second- and third-tier cities in China.
As at March 31, Multi Sports had net cash of RM274.4 million, which Wang said would be utilised prudently for working capital, and possibly on building up its Evidoma brand.
In terms of financial prospects, Wang said revenue and profits for the current financial year ending Dec 31, 2014 (FY14) should not deviate much from that of FY13.
In FY13, Multi Sports reported a net profit of RM22.6 million on revenue of RM383.9 million. This compares with a net profit of RM67.6 million and revenue of RM414.6 million the year before (FY12).
In its 1QFY14 results note, the group said it will focus on higher-margin orders for its shoe soles segment, instead of focusing on closing book orders that might not be too profitable.
It also said barring any unforeseen circumstances, the results for FY14 would still be profitable.
Multi Sports’ share price closed at 19 sen last Friday, giving it a market capitalisation of RM98.3 million.
This article first appeared in The Edge Financial Daily, on June 30, 2014.