KUALA LUMPUR (June 22): China-based shoe manufacturer Maxwell International Holdings Ltd said it is unlikely to meet the double-digit revenue projection for the financial year ending Dec 31, 2015 (FY15), based on its first quarter results which saw it swing to a net loss of RM3.05 million.

Revenue for the three months ended March 31, 2015 (1QFY15) also fell 16.5% to RM19.89 million from RM23.83 million in 1QFY14.

Maxwell chief executive officer (CEO) Xie Zhenan said external factors such as the depreciation of the euro and a slowdown in China's economy have make it difficult for the group to maintain its full year projection.

Nevertheless, the group is maintaining its forecast of returning to the black in 2QFY15.

"It is not easy to estimate the revenue growth projection now as we cannot control external factors. On our part, we can only try to control our costs. We hope that the second half of the year will be better," Xie told reporters after the group's two-hour long annual general meeting (AGM) here today.

He said the depreciation of the euro against the yuan has hit the group significantly as it has made exports more expensive. As a result, Maxwell's European customers are ordering less as the average selling price of a pair of shoes has increased by 50%.

"Previously a pair of shoes costs 10 euros, now it costs 15 euros. When it is more expensive to buy from us, they will opt for other shoemakers," said Xie, noting that the European market accounts for one-third of its revenue.

Maxwell is engaged in original equipment manufacturer (OEM) and original design manufacturer(OEM) for international brands such as Brooks, Skecher, FILA, Yonex and Wilson.

The group posted a net loss of RM3.05 million for 1QFY15, compared with a net profit of RM37,000 a year ago. It attributed the loss to the depreciation of the euro, a long holiday and softening consumer spending on its retail segment.

Xie also said the group plans to streamline its retail business to cut unprofitable segments.

Maxwell independent non-executive director Lim Chong Hoe said its retail segment had incurred a loss of some RM2 million to RM3 million since 2013.

"We face a challenging market as online shopping has become increasingly popular, which was why we had aborted the acquisition of Lim Ying Ying Ltd.

"We will restructure our retail side to see which segments – menswear, mens' underwear, ladies wear and children's wear are still able to make profit. We will see whether we can enter into joint ventures with some local or overseas partners," Lim said.

In December 2012, Maxwell's unit Maxwell International(Hong Kong) Ltd had entered into a conditional sale and purchase agreement to acquire 92.5% of the issued share capital of Lim Ying Ying and its 100% subsidiary Shantou S.E.Z. Lim Ying Ying Fashion Co Ltd for HK$15.6 million. However, the deal was aborted in April 1, 2015.

Earlier at its AGM, Maxwell (fundamental: 1.3; valuation: 1.5) shareholders had expressed their concerns over the utilisation of the RM371 million cash and the decline in the group's share price.

Xie said shareholders had suggested the board to utilise the cash pile to generate profit and not to let it sit in the bank with a low interest per year.

"We understand the concerns of the shareholders who wish to see their return of investment. We accept their views, but we also want to make sure that the cash reserves are safe," Xie added.

The shareholders had expressed disappointment in the group's share price performance as the book value was worth RM1, but the shares were traded at 11.5 sen today, giving it a market capitalisation of RM45.87 million.

Xie maintained that the group is fundamentally strong, and he is also unable to grapple with the dissatisfactory share price performance.

"We spend our capital in developing the new plant in Henan. It can't happen unless the group has good foundation. We have a good team and structure, we have a good image, but our share price does not perform well, I don't understand why," Xie said.

He said the Phase 1 of the Henan plant which began construction in mid-2013, is at the stage of renovation.

"We will decide when to get it up and running when the market improved. Upon completion, the plant is expected add another maximum 20 lines to our existing 4 lines which will contribute to our group significantly," Xie added.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)