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This article first appeared in The Edge Malaysia Weekly on December 2, 2019 - December 8, 2019

ASIA Brands Bhd is considering taking its Anakku brand regional and has started preliminary studies on the move, The Edge has learnt.

“The group is doing market research now. They have sent teams to Southeast Asian countries to do some studies. The teams are exploring retailing options and partnerships or setting up their own shops in the foreign markets. It is still early days. What is crucial is to ensure the on-the-ground research is done well,” says an industry source.

Currently, Asia Brands operates predominantly in Malaysia and Anakku is the largest contributor to its top line. However, its baby products division has yet to turn a profit in FY2019, although it significantly narrowed its loss before tax to RM519,000 from RM18.2 million in 2018. Its other business segment — lingerie — registered a RM7.7 million profit before tax in 2019, compared with RM4.4 million a year earlier.

New of exploratory moves to take Anakku abroad come on the heels of Asia Brand’s return to profitability. For the first time in three years, the group achieved a full-year operating profit in the financial year ended March 31, 2019.

Before that, the group had been bleeding red ink for three consecutive years from FY2016 to FY2018.

In FY2019, the group recorded a net profit of RM5.3 million, compared with a net loss of RM19.2 million in FY2018.

The positive momentum seems to have continued into the current financial year with its latest quarterly results showing net profit more than doubled to RM5.9 million for the six months ended Sept 30, 2019, versus RM2.4 million for the same period a year earlier.

Revenue rose 19% year on year to RM89 million for the period.

“The higher revenue and pre-tax profit were due to better store productivity over the period,” the company noted in its financial results announcement to Bursa Malaysia on Nov 21. “The group is expected to perform better than previous year.”

The results indicate that Asia Brands’s restructuring exercise is starting to bear fruit.

The improvement in numbers is partly due to three key corrective strategies set out in the last financial year: providing variety in product offerings, reducing cost of goods and streamlining operations to be more cost effective.

Some of the measures undertaken include hiving off its casual wear retail business to focus solely on its baby products and lingerie businesses.

Asia Brands also managed to streamline the number of brands in its portfolio, which had climbed to 30 at one point.

It discontinued several international licensed brands such as Manchester United, Union Bay and Elle Lingerie to reinvest its resources in its core brands — Anakku and Audrey.

In FY2017, the group also disposed of casual-wear brands Antioni, BUM Equipment, Bontton and Diesel.

While revenue dropped 28% y-o-y to RM150.6 million in FY2018 following the group’s exit from the casual wear business in 2017, losses were reduced by 67% to RM19.2 million from RM58.5 million.

Apart from its brands, the group is also streamlining its outlets, with the number rationalised over the past three years to 487 as at March 31, 2019, from more than 1,300 large-store formats, consignment and stand-alone outlets before that.

Over the same period, borrowings have been gradually trimmed, falling from RM169 million in FY2016 to RM65 million as at end-FY2019.

The group has been tackling inventory levels as well, which were reduced 15% y-o-y to RM136.3 million in FY2016 — the year it slipped into the red — and further cut to RM46.1 million in FY2018 (RM32.8 million for its baby products division and RM13.3 million for the lingerie segment).

In FY2019, Asia Brands noted that with improved operational cash flow, inventory build-up was necessary to provide new product offerings and an enhanced product range to cater for the growing business.

The baby products segment’s closing stock was RM43 million, compared with RM32.8 million in the last financial year, while the lingerie’s inventory amounted to RM17 million from RM13.3 million.

Hence, even though total inventory climbed to RM60 million in FY2019 from RM46.1 million in FY2018, it is still a significant decrease from FY2016’s RM136.3 million.

Still, analysts have cautioned the group to be mindful of rising inventory levels.

“As inventory is linked to cash flow, retail companies should keep an eye on increasing levels as it can affect a company’s free cash flow. With inventory of RM60 million and revenue of RM159 million in FY2019, that works out to the company holding about 4.5 months’ worth of stock,” observes an analyst.

Asia Brand’s stock has been on a downward trend in the last five years and hit a closing low of 35 sen in January. Since then, the share has recovered to 50 sen as at last Wednesday, which is still markedly lower than its five-year closing high of RM2.656 in December 2014.

As at Sept 30 this year, the company’s net assets per share stood at 84 sen, a third less than the RM1.26 it was at a year ago.

 

 

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