KUCHING: Federal Furniture Holdings (M) Bhd (FFHB) is poised to benefit from franchise coffeehouse chain operator Starbucks Corporation’s (Starbucks) expansion into emerging markets.
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) in a report yesterday said FFHB is uniquely positioned to benefit from Starbucks’s aggressive expansion plans into emerging markets such as China, India and Cambodia.
It observed FFHB’s export and manufacturing division,which derives 90 per cent of its sales from Starbucks has secured the Starbucks Hong Kong and Cambodian markets and has commenced supply of tabletops during the year.
Additionally, the research firm noted FFHB has also entrenched itself as the sole vendor for kitchen tops and carcasses within a number of countries in Asia with high barriers to entry.
Besides that, Kenanga Research also gathered that initiatives were already in place to increase FFHB’s capacity production of furniture, with the company’s new production assets that could provide 20-30 per cent boost to capacity.
Nonetheless, the research firm expects FFHB’s contribution from the Interior Fit-Out (IFO) segment and a change in design requirements at Starbucks to dampen turnover for financial year 2016 (FY16) ending Dec 2016.
Kenanga Research believed the setback is temporary and just a blip in FFHB’s overall growth trajectory.
As a result, it expects FFHB’s earnings in FY16 to moderate by 29.7 per cent but expecting a strong recovery of 119.6 per cent and 35.9 per cent respectively for FY17 and FY18.
Meanwhile, for the second quarter of 2016 (2Q16), FFHB announced end of last month that its net profit gained by 15 per cent year-on-year (y-o-y) to RM1.06 million while revenue grew by 12 per cent y-o-y to RM24.46 million.
For the first half of 2016 (1H16), FFHB said revenue rose by 27 per cent y-o-y to RM51.55 million while earnings also increased by 27 per cent to RM2.19 million.
On another note, Kenanga Research observed that FFHB had recently proposed to acquire 60 per cent equity interest in a construction company, Pembinaan Masteron Sdn Bhd (PMSB) which will provide an instant boost to the group’s top line and bottom line growth for FY17.
The research firm noted the acquisition of PMSB has came with a profit guarantee of RM7 million for FY16 and an aggregate profit guarantee of RM20 million for FY16 to FY18.
Significantly, Kenanga Research pointed out PMSB has a sizable RM355 million order book, providing earnings visibility for two to three years as well as being synergistic towards FFHB’s IFO segment in the future.
In the meantime, Kenanga Research said FFHB’s IFO segment has secured and completed a higher number of projects, including the iconic St Regis Hotel.
With more orders from Starbucks as well as contribution from PMSB, Kenanga Research was bullish on FFHB’s prospects over the medium term.
Besides, the research firm was positive on FFHB due to the company’s exciting growth prospects, strong business relationship with Starbucks, and positive synergies from its proposed acquisition of PMSB.