Key takeaways of Tomei analyst briefing

Continuous expansion. Firstly, the company is enhancing its retail network for greater accessibility and consumer experience by acquiring 4 ‘Goldheart’ outlets in Malaysia. Tomei has implemented a new retail layout of more than 10 outlets, after opening 5 outlets last year. Secondly. The company has acquired additional distributorship for Batar Jewellery in Malaysia. We understand Batar Jewellery is renowned for 24k gold products and is the largest gold distributor in China. Thirdly, the Company has strengthened its manufacturing and wholesale segment by acquiring 55% stake in jewellery wholesaler O M Design.
Open more new outlets in 2012. The company plans to open 9 new outlets in 2012 to strength its local presence from current at 68 outlets to 77 outlets in nationwide in order to grasp emerging market share.
Online platform for gold and silver purchases. The company has launched an e-portal in November 2010 as an additional channel to meet customers’ increasing demand. We understand the e-portal is not a trading platform for gold and silver but merely for gold and silver purchases. We expect the contribution from e-portal to be insignificant at the moment.

The robust revenue growth is underpinned by strong revenue from both segments, Manufacturing & Wholesale and Retail. The FY11 group’s revenue was underpinned by robust growth in Manufacturing & Wholesale by 52.7% y-o-y to RM 113.6 Mil. Meanwhile, Retail segment grew by 39.0% y-o-y to RM 391.8 Mil. Based on the portion of revenue, the retail segment has heavier weight of 77.5% of total revenue as compared to Manufacturing & Wholesale segment, which contributed 22.5%.
Low free-float shares. The company has 26.2% of free-float shares in trading which is just above minimum listing requirement of 25%. We understand low free-float of shares would reduce the liquidity of shares and reduce interest of investors.
High net gearing ratio. Net gearing of the company is high (0.7 times in year 2010 and 0.9 times in year 2011). The net gearing of the company is significantly higher than its peer, Poh Kong which has maintained 0.4 times net gearing. We understand management is confident in maintaining net gearing below 1 time.
Higher ROE and ROA than peer. The company has superior ROE (19.1%) and ROA (9%) over its peer Poh Kong (ROE: 12.6%; ROA: 7.6%). Moving forward, we believe the company could maintain its high efficiency.
Solid earning growth. Tomei has successfully achieved revenue and net profit CAGR of 5% and 1.5% respectively over the past 5 years. It indicates bright prospect in return of EPS in the future.
Attractive valuation. The Company is currently trading at 3.15x consensus FY12F PER. We peg Tomei at 3.5x PE instead of industrial PE of 6.1 mainly due to its high net gearing and low liquidity of shares. Based on estimated FY12 EPS of 27.5 sen, its valuation translates into fair value of RM0.96 (Non-rated) with potential upside of 11.92%.


Company Background
Tomei Consolidated Berhad, established in 1968, is a fully integrated jewellery business where it is involved in all operations of jewellery business from design and manufacturing of jewelry to sale of jewelry to customers.

The group has strong presence in local market with a comprehensive retail network of 68 outlets nationwide with 5 retail brands (Tomei, My Diamond, T.H. Jewelry, Le Lumiere and Goldheart). The group also has its presence in Vietnam and China as well as exports its products to oversea.

Tomei Consolidated Berhad has introduced different brands to cap different market segment such as: -

Tomei brands for middle class
My Diamond for middle class and young professionals
T.H.Jewelry for upper class.
Le Lumiere for upper class.
Goldheart for wedding couple.