Golden opportunity
Jewellers rack up some gains on gold price movement
PETALING JAYA: Public-listed retail jewellers have been gaining investor interest in line with the rise in gold prices, in turn the result of geopolitical uncertainties.
The North Korean ballistic missile flew over Japan early last week added even more fire to the rally in gold.
Usually thinly-traded, retail jewellers such as Poh Kong Holdings Bhd and Tomei Consolidated Bhd have seen their share prices gaining in the past two weeks by some 15.46% and 36.75% respectively, with a sizeable number of shares changing hands.
The rise in gold prices has contributed to the growing interest in local jewellers.
Gold prices are hovering at an 11-month high following the continued news coverage of events that could lead to a second Korean war breaking out in that part of the world.
Gold is traditionally seen as a safe haven during times of uncertainty and war.
Spot Gold last traded at US$1,310.97 per troy ounce. Year-todate the commodity has gained some 13.17%.
Despite the strong gains in share prices of Poh Kong and Tomei, the companies are still trading at relatively undemanding historical price to earnings ratios of 12.7 times and 10.3 times respectively.
While no equity analysts cover these stocks, largely due to the illiquid nature of the shares, dealers offered some insights.
A dealer said that the jewellers are a proxy to the movement in gold prices and tend to benefit when their inventory holdings rise in value.
“The jewellers are likely to gain from the rise in prices of precious metals such as gold and silver as they are able to sell at a significantly higher price from what they procured it at,” he says.
Tomei’s shares continued to rise following the posting of its latest quarterly financial result.
This brings Tomei’s year-to-date (y-t-d) share price gain to 100% while Poh Kong’s y-t-d share price gain is about a quarter of that at 23.08%.
In its recent second quarter ended June 30 financial results, Tomei’s net profit rose by more than 10 times year-on-year (y-o-y) to RM5.63 mil from RM485,000 a year ago.
Revenues were higher by 57.9% to RM169.17 mil from RM107.14 mil a year ago.
Sales and profits in both its retail, manufacturing and wholesale segment rose and its retail segment also returned to profit from a lossmaking position in the same quarter a year ago.
Tomei markets the Tomei, My Diamond, Goldheart, Le Lumiere and De Beers brands in Malaysia while it also wholesales its products to other jewellery stores.
The company also operates several retail stores in China and Vietnam and its products are also exported to Singapore, Indonesia and certain countries in Europe.
Notably, in its latest quarterly announcement, Tomei said that it is still bracing for the soft retail sentiment to continue but sees its retail business segment continuing to improve.
The company said that a strategy to expand its product range would
help it sustain profitability for the rest of the year.
Tomei has been seeing an erratic bottom line performance in the past five years where it reported net losses in the financial years (FY) of 2013 and 2015 while revenues were on a general downtrend since 2013.
However, in its y-t-d financial performance for the six-month period, Tomei had already netted sales of RM334.85 mil from RM230.38 mil a year ago while the bottom line had more than doubled to RM9.96 mil.
Should this performance sustain for the rest of the year, the company would see revenues recovering to their four-year high. In terms of profits, if the company were to replicate its first-half performance in the second half, it would send profits for the next six months to a five-year high.
Meanwhile, Poh Kong saw its latest third quarter ended April 30 net profit gaining by 21.51% to RM7.4mil from RM6.09 mil a year ago on the back of revenues coming in slightly higher at RM205.23 mil from RM202.52 mil a year ago.
The company said the slight rise in revenues was due to higher retail gold prices and additional revenue from new outlets.
Poh Kong also noted, in its financial statements, that the higher retail gold price coupled with the decrease in its operating expenses had resulted in an improved profit margin for its third quarter of FY17.
Interestingly, a fund called Yeoman Capital Management, which is a substantial shareholder in Poh Kong, recently increased its stake.
The fund holds close to 7% in Poh Kong, which is an increase from the 6.34% stake it held in July last year.
It would be interesting to watch the share prices of the jewellers and how they react to gold price on the international market.
The present uncertainties with respect to a possibility of war in the Korean region could mean more gains ahead for spot gold for as long as the matter continues to linger.