Thursday 28 Mar 2024
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PUTRAJAYA: China-based Multi Sports Holdings Ltd, is focusing on expanding its apparel and accessories segment in the current financial year ending December (FY15) as this segment provides a higher profit margin.

Multi Sports’ (fundamental: 1.45; valuation: 2.1) newly appointed chief financial officer Wong Kok Fong said this follows the growth of this segment in FY14. 

In FY14, Multi Sports saw revenue of its apparel and accessories segment improve significantly to 99.8 million yuan (RM56.2 million) from 40.3 million yuan in FY13. This segment also saw the group post a profit of 4.9 million yuan in FY14 against a loss of 55.2 million yuan in FY13.

Accordingly, the group expects demand for apparel and accessories to continue to grow.

However, Wong added that substantial investment in advertising and promotion (A&P) has to be made in the apparel and accessories segment so that it is able to capture a bigger market share. 

"We have not decided on the budget yet. We would have to hold an internal discussion to allocate a portion for this,” Wong told The Edge Financial Daily after the group’s annual general meeting yesterday.

He added that the group will also need to see what the market appeal is for this segment.

Multi Sports' core business is in the sale of sports and casual shoe soles. It also does research, design and manufacturing of shoe soles.

The group maintains that while its apparel and accessories segment is growing, its core business will continue to be in the manufacturing of shoe soles. This is despite keen competition eroding its margins.  

In the first quarter ended March  of financial year 2015 (1QFY15), Multi Sports saw its revenue decline to RM82.19 million from RM86.29 million in the previous corresponding period. Net profit slipped to RM6.16 million from RM9.73 million.

The apparel and accessories segment contributed 14.68% to revenue and 17.68% to profit, while its gross profit margin for 1QFY15 was 32%, which was a 1% decline from a year ago.  

But, the gross profit margin for its shoe sole segment declined to 16.2% in 1QFY15 from 21.2% in 1QFY14, due to an increase in production cost and overheads such as the cost of labour.

"The core business of the company is still manufacturing shoe soles, although the margin is smaller due to stiff competition," Wong said.

While the slowdown in the China market has sparked concerns about consumer sentiment, Wong was quick to note that per capita spending is still increasing. “That is why we see that we still have potential [to grow],” he said.

Wong also said that shareholders represented by the Minority Shareholders Watchdog had expressed concern that the group did not pay a dividend for FY14.

"The group is facing challenges and needs to reserve substantial cash flow to face the challenges in China," Wong said.


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. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.

 

This article first appeared in The Edge Financial Daily, on June 23, 2015.

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