(Stocks Discussion) SGX: Epicentre Holdings Limited (SGX: 5MQ)?

This business is too dependent on a single brand product. Plus, it is contingent that they get the rights to distribute them.

Apple has since opened its official store in Singapore and this definitely affected them. Why would consumers buy from third party vs the official brand store?

TL;DR The business had faired quite poorly over the past few years due to weak revenue and high costs from rent, overhead and manpower. Their financials don't look good either.

Business Profile

Epicentre Holdings Limited, an investment holding company, engages in the retail of Apple brand products and third party branded products in Malaysia, and previously, Singapore. The company provides various Apple products, including iPhones, iPads, Macbooks, iPods, and Apple watches, as well as Apple and non-Apple branded accessories.

SWOT Analysis

Source: Vulcan Post

Strength: The company still has a relatively strong brand name in the retail market. This brand equity is especially important for a retail business like theirs that requires customers to rely and trust on the service and quality of their products.

Weakness: The business lacks a clear product differentiation from other retail brands, as there is not much value add from Epicentre on the products they retail. Hence, this has allowed Apple to revoke their license since they have a small part to play in the value chain. This has also enabled other industry players to steal their market share.

Source: The New Paper

Opportunity: As of June last year, the company had tried to acquire a major regional property development business that comes with a mixed use development in the heart of Bangkok that is currently being developed, while at the same time acquiring an established and reputable hotel management company.

Threats: As management had clearly mentioned, the business would need to move into more profitable segments. However, branching off into properties and the hospitality industry in another country is quite risky as the team may lack the experience and skills to grow their business there. Additionally, such a move is highly risky as well.

Financials

Income Statement

Over the years, revenue has been decreasing consistently, which is quite an unhealthy sign. This due to the Malaysia operations losing its Apple Premium Reseller status and was required by Apple to renovate all the stores.

There was also disposal of Singapore’s Apple-related business. The discontinued operation reported a loss of $4 million in FY2018 as compared to the profit of $325,000 the previous year. The revenue from the discontinued operation was adversely affected due to direct competition from Apple Store at Knightsbridge Mall and other Apple Premium Resellers.

Overall, the business seems to have very weak profitability as a consequence of weak revenue and high fixed operating costs such as rent and large capital expenditures.

Balance Sheet

Apart from a weak income statement, their balance sheet looks quite weak too. They have poor short-term liquidity and very high liabilities and debt levels. Moreover, with low cash balance, Net Debt relative to equity is very high. Moreover, with negative earnings, the company might have issues servicing its debt and interest payments.

Cashflows

Cashflows look pretty weak for their business as well. This is evidenced by very low operating cash flows and cash outflows both for investing and financing activities. Cash flow had improved due to the reduction in inventory and receivables. As a whole, free cash flow was also weak due to the need for capital expenditures.

Operating Metrics

Needless to say, the business has weak opearting metrics as well due to weak earnings.