Asia Brands to consolidate

by **Cals** Sun 17 Aug 2014, 22:31

Published: Saturday August 16, 2014 MYT 12:00:00 AM
Updated: Saturday August 16, 2014 MYT 10:09:01 AM
[size=40]Asia Brands to consolidate
BY JOHN LOH[/size]
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File picture shows one of Asia Brands' Anakku store. At present, the group manages 1,500 consignment outlets in department stores, 248 standalone stores and four large-format stores with a combined 785,000 sq ft.

WITH 2014 and 2015 expected to be belt-tightening years for consumers, retailer Asia Brands Bhd plans to close its unprofitable stores and pare down debts incurred for its RM245mil acquisition of the Anakku and Audrey brands.
The garment maker and wholesaler-turned-brand manager also aims to be syariah compliant and derive tax savings from converting its borrowings into working capital, chief executive officer and executive director Cheah Yong Hock tells StarBizWeek in an interview.
Formerly Hing Yiap Group Bhd, the firm had bought six subsidiaries of Asia Brands Corp Bhd in 2012 for cash and shares, giving it access to leading mass market apparel and innerwear brands for women, babies and children.
The deal was financed entirely by borrowings, raising Asia Brands’ gearing to a staggering 1.25 times. It subsequently placed out 10% of its shares to pay back some of the loans.

As of its financial year ended March 31, 2014 (FY14), Asia Brands boasted cash and equivalents of RM10.3mil versus borrowings of RM177.6mil and a net gearing ratio of 0.7 times.
The group is targeting to reduce its net gearing further to below 0.5 times by FY16, Cheah says.
“We would prefer to do this via internal operational efficiencies rather than issuing new shares, which would dilute shareholders,” he points out.
According to a note from Kenanga Research in July, Asia Brands could shave RM50mil off its debt pile in FY15 and save RM2.75mil on interest costs.

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[size=12]Cheah: ‘Many people say the market will be quiet this year, but we see this as a good opportunity to take a breather and prepare for a recovery.’

In FY14, its revenue and profit after tax surged 69.67% and 75.81%, respectively, to RM320.46mil and RM30.24mil, due to its merged business and one-off gains from the sale of properties.
Its gross profit margin expanded to 52.1% from 47.03% the year before, and profit after tax margin to 9.44% compared with 9.11%.
Asia Brands booked its first full year of consolidated profit in FY14, after the merger was completed in December 2012.
Its shares jumped 12.95% between end-February and mid-April, likely pricing in the improved results. The counter closed yesterday at RM3.70, down 7.5% year-to-date, for a market capitalisation of RM292.7mil.
Be that as it may, the group’s cost of sales ballooned 53.41% in FY14 to RM153.48mil and selling and distribution expenses by 118.23% to RM116.38mil, the notes to its accounts showed.
On the whole, its operating expenses last year were higher than expected, says Kenanga Research, the only brokerage covering the stock.
Cheah explains that the sharp increase in costs was unavoidable given its enlarged operations and higher tax rate and interest costs.
Even so, the group is targeting to trim its selling and distribution expenses to between 30% and 32% of its turnover from 36%, Cheah says.
Asia Brands is also seeking other ways to increase operational efficiencies, like hiving off non-core operations and cutting inventory, which has decreased to 13.9 months versus 17.1 months in FY13.
A restructuring of its debt into working capital is in the works, which could lower its effective tax rate to 25% from 28%, Cheah adds.
“Many people say the market will be quiet this year, but we see this as a good opportunity to take a breather and prepare for a recovery.
“We can’t control market sentiment. If you ask me, nothing much has changed, although people seem more cautious,” he notes.
While beefing up its balance sheet will be a priority this year, Asia Brands is also planning to expand its portfolio of over 30 brands, according to Cheah.
“We are always on the lookout to distribute new international brands and are in talks with a few parties. We can either create our own or acquire brands.”
Besides Anakku and Audrey, Asia Brands owns and manages brands like BUM Equipment, Antioni, Bontton, Diesel and Union Bay. Twenty of these are house brands, with Asia Brands holding licensing rights for the remaining 10 foreign brands.
Cheah says the firm is renegotiating its license with Manchester United after Adidas snagged the rights to the English football club’s kits from Nike in July under a 10-year, £750mil deal starting in 2015-2016.
Asia Brands currently holds both the wholesale and retail licenses for Manchester United here, and it is applying to get the master licence for Malaysia.
It is also in talks with the US owners of BUM Equipment, for which Asia Brands has the sole rights in Malaysia, to secure distribution rights for the whole of South-East Asia, Cheah quips. He hopes to seal a deal by the end of the year.
To expand, Asia Brands will ride on the growth of department stores and hypermarkets like Aeon, Parkson and Tesco as they open in secondary cities throughout Malaysia.
At the same time, Cheah plans to rationalise its store network by shutting down unproductive consignment counters and rolling out standalone stores, buoyed by the huge influx of new malls which will put pressure on rental rates.
Asia Brands has more bargaining power now to jostle for prime retail lots and cheaper rental rates because of its large portfolio and ability to take up more floor space, Cheah quips.
At present, the group manages 1,500 consignment outlets in department stores, 248 standalone stores and four large-format stores with a combined 785,000 sq ft.
On the goods and services tax (GST), Cheah believes that any additional costs from the new tax regime will be passed on to end-consumers, although the exact quantum remains unclear.
“With GST, labour, production, raw material and other costs on the rise, overall costs could easily go up by 5%-10% next year.[/size]