Stock With Momentum: Fiamma Holdings

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This article first appeared in The Edge Financial Daily, on January 27, 2016.


Fiamma Holdings Bhd (+ve)

The usually thinly-traded shares of Fiamma (fundamental: 2.2/3, valuation: 3/3), a home appliances distributor cum property developer, triggered our momentum algorithm for the second time yesterday.

It first triggered the algorithm on Jan 8, following the announcement of a series of corporate exercises, including a share split and bonus issue, on Jan 6. Since then, the stock has gained a cumulative 33% to RM2.31.

The proposed 1-into-2 share split and the subsequent bonus issue on a 1-for-2 basis is to enhance the trading liquidity of its shares. Fiamma also proposed to establish a five-year employee share option scheme of up to 15% of the paid-up share capital after the share split and bonus issue.

Listed in 1997, Fiamma distributes a wide range of electrical home appliances under the ELBA and FABER brands. Apart from home appliances, it also distributes sanitary ware, bathroom accessories, home furniture, medical devices and healthcare products.

Although the company ventured into property development in 2007, the trading and services segment remained the main contributor, accounting for 81.2% and 65.6% respectively of its revenue and pre-tax profit in its financial year ended Sept 2014 (FY14).

For FY15, revenue declined slightly to RM333.5 million. Stripping a RM24.8 million fair value gain of investment properties, net profit would have declined 23.4% y-o-y to RM31.7 million, due to lower contributions from its property development.

Fiamma’s relocation and centralisation of its warehouse, which was completed in Oct 2015, is expected to improve operational efficiency and generate rental income from third party customers in FY2016. On the property development front, Fiamma expects the on-going residential and commercial development in Johor will contribute to its earnings in FY16 and FY17.

The stock currently trades at a trailing 12-month P/E of 5.5 times and 0.83 times book value. The company has been increasing dividends in the past five years. Dividends totalled 9 sen per share in FY14, up from 5 sen in FY10, giving a 3.9% yield.