Poh Kong builds brand by offering products for various market segments

KUCHING: Poh Kong Holdings Bhd (Poh Kong) plans to continue its drive to build market share by enhancing and differentiating its product offerings to its targeted market segments.

INCREASING PROMOTIONS: Gold jewellery remains to be Poh Kong’s main revenue contributor, although the group stepped up the sales of diamonds and gems in its advertising and promotion campaigns.

The group actively evaluates various initiatives and opportunities to attract new customers through the introduction of new product designs and enhanced customer service.

Poh Kong’s sales growth would also be driven by promotional activities during festive seasons or roadshows. Financially, the group’s revenue for the third quarter of the financial year 2010 (3Q/FY10) ended April 30, 2010 was higher at RM132.7 million compared with the revenue in the corresponding quarter last year of RM121.3 million.

The group’s profit before tax (PBT) for 3Q/FY10 at RM9.7 million was higher compared with the PBT of RM6.8 million in the corresponding quarter last year. This reflected an increase of RM2.9 million. The increased in profit before tax was mainly due to the higher sales registered during 3Q/FY10.

According to Mercury Securities Sdn Bhd (Mercury Securities), the country’s economy had grown in the first quarter of this year with a sterling gross domestic product (GDP) growth of 10.1 per cent year-on-year. Inflation, as measured by the consumer price index (CPI), usually moves in tandem with GDP growth.

For the record, the latest CPI of 1.6 per cent for May 2010 showed that the economic recovery was well on track. The overnight policy rate (OPR) had just been raised on July 8 to 2.75 per cent, in order to rein in inflationary pressures.

The research firm further stated that this uptrend in GDP growth, OPR and CPI all pointed to a phase of economic recovery. Economic recovery would also lead to better consumer optimism and hence assist to raise domestic consumption, including spending on retail products.

According to Retail Group Malaysia (RGM), which tabulates retail data, spending in the retail industry in Malaysia was expected to grow one per cent to three per cent by the end of 2009 in view of the sluggish economic conditions. However, RGM was more optimistic for 2010 and projected annual retail sales growth at about five per cent in 2010.

Gold wafers, gold bars and gold-based jewellery could be seen as a viable inflation-hedge or long-term investment option. Consumers nowadays have the option of investing in gold via commercial banks (via gold investment accounts) or even via MLM (multi-level marketing) companies that might offer gold-based investment products.

In addition, gold spot prices had been holding up steadily above the US$1,000 level since October last year. If global gold prices keep going higher, this could lead to a short-term increase in Poh Kong’s profit margins but this could dampen consumer demand as well (in terms of affordability), added the research firm.

To recap, the spot rate for gold traded on the New York Mercantile Exchange (NYMEX) is currently around US$1,199 per ounce. Mercury Securities believed that large jewellers like Poh Kong do have some revenues coming from sales of gold bars. Gold bars, which are 999.9 per cent pure gold, are commonly available in one gramme (g), 5g, 10g, 20g, 50g and 100g in weight denominations.

Gold jewellery remained Poh Kong’s main revenue contributor although the group had stepped up the sales of diamonds and gems in its advertising and promotion campaigns. The branding strategy of these stores had been adopted so that the company becomes less dependent on its traditional yellow gold jewellery.

The group has a total of 95 retail outlets nationwide and it would identify strategic locations for outlets across the country that has the best potential for higher revenue growth and consumer demand.

Mercury Securities highlighted that Poh Kong constantly evaluates its operational efficiency, capital expenditure, outlet-expansion plans, operating costs, gearing and gold inventory levels. Meanwhile, the group continued to place strong emphasis and commitment on design, craftsmanship, reputation, premium quality and competitive pricing.

Generally, it expected Poh Kong’s FY10 and FY11 results to hold up in view of the recovering economic conditions and assumed Poh Kong to declare a slightly better gross dividend per share (DPS) of two sen for its FY10 and FY11 reporting periods. This was on the premise that it had maintained a dividend payout of around 20 per cent in recent years. The group had also been successfully paring down its net gearing levels.

With the share capital worth RM205.2 million consisting of 410.4 million shares of RM0.50 each, its market capitalisation amounts to RM151.8 million.

Based on the given factors, Mercury Securities pegged its target price at RM0.42 per share.