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Epicentre Holdings Up The Ante In The On-going iPhone Wave?
Corporate Digest | 17 February 2012
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By: Jade Lee
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By: Louis Kent Lee
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Apple: iPerform

Raking in a record breaking US$46.3 billion sales revenue and US$13.1 billion net income for the first quarter ended 31 December 2011, Apple has beaten the estimates of analysts by a significant margin. Fuelling the sales was none other than its hot products like the iPhones and iPads. Although part of this record-breaking performance was boosted by the holiday season, ever strong demand for Apple’s products continues to be the fact that is apparent to everyone. In perspective, the sales figures convey to an average of 378,000 iPhones and 157,000 iPads every day for the quarter, globally.

Interestingly, we peered deeper into Apple’s financials and saw the whopping cash balance that it has on hand. Apple had $97.6 billion cash on hand and marketable securities, making possibilities endless for Apple be it strategic take overs or developing new products.

Epicentre Holdings Up The Ante In The On-going iPhone Wave?

By now, most of you have probably heard about Apple’s juicy earnings news which let us turn our attention to the premium Apple reseller, Epicentre Holdings. Logically, the mind-blowing results would have shown a positive sign for Epicentre, where most of its sales for the first six months of FY11 was mainly propelled by the growing demand for Apple products.

In fact, Epicentre’s earnings for the first half of FY12 posted a discouraging note with a 75.1 percent drop to $1.2 million on higher administrative expense. Revenue, on the other hand, crept up a marginal 0.4 percent to $92.6 million while gross profit margin dropped by 2 percentage point to 13 percent. Factoring in the sluggish performance after its release of financial results, Epicentre’s share gapped down by 5.4 percent to open at $0.44 on 15 February 2012 from the previous day’s closing price of $0.465. It further fell and closed at $0.40 the next day, registering a total loss of 14 percent over the two days.

Are Expansion Plans An Eventual Bottleneck?

As mentioned earlier in the article “Epicentre Holdings: Growth Story Intact Despite Insider Selling” written in June 2011, China was emphasised by Epicentre as a key target market that represents exponential potential for growth. Yet, DMG & Partners noted that the progress in the foreign land did not live up to what market watchers expected, as so far only one store has been opened in Shanghai, against its initial plan to open two new stores in China by 2011.

Based on a recent report by Morgan Stanley, Apple’s smartphone was chosen by close to 80 percent of its respondents in China, setting foot the demand claim on Apple’s products. Although new markets represent new opportunities, these opportunities do come with risks. Notably, Cybermart (owned by Apple’s major supplier Foxconn in China) has recently announced receipt of approval from Apple as one of the Apple-licensed retailers in the Asia-pacific region. This is expected to add further competition to the already competitive Apple Retailer Scene in China as of current.

Singapore and Malaysia remain Epicentre’s core market, with segmented revenue taking up a total of 81.3 percent and 18.3 percent respectively as at end-December 2011. Revenue for the aforesaid regions also grew at a CAGR of 57.8 percent and 60 percent respectively over the period of FY09 to FY11. That said, we are of the view that 2H12 earnings might remain muted on the back of further expansion in Singapore and Malaysia, in which Epicentre announced that it is planning to open more outlets for Epicentre and EpiLife in the coming six months. This will inevitably translate into higher administrative expense stemming from higher set-up cost, which could eat into Epicentre’s earnings further.

In the short to medium term, the spotlight will be on the launch of iPad3 and Apple Television (to be launched in February 2012 and out in June 2012 respectively). Whilst this may be viewed as the near-term catalysts for Epicentre, two key questions have also been flagged: Will Epicentre’s performance be able to return to its sales level which peaked during 1H11? And could this mitigate rising operating expenses incurred from the expansion? That is still too early to know for sure.

However, billionaire Peter Lim, via his investment company Rowsley, is one of the majority shareholders of Epicentre, and from the 5.2 percent holdings under Rowsley, it is not too hard to see that he still sees the possibilities ahead for Epicentre.

Moving forward, Tim Cook, chief executive officer of Apple, has said that he is excited by Apple’s new products in the pipeline with rumours anticipating a new 15-inch MacBook Air, full-function Apple Television, and the iPad 3.

If you remember the craziness after the launch of iPhone, iPhone4, and iPhone 4S, it is not too hard to imagine the same thing when the new products mentioned in the pipeline are available to the public. Besides, anticipation is a very powerful thing, especially for Apple’s fans worldwide, as most new products will always encounter an “out of stock” phenomena due to the strong demand.

Factoring this said “phenomena” in, it is foreseeable that the demand for Apple’s products is likely to be healthy as its products do the talking. If you don’t feel like biting into this red fruit, we are pretty sure millions of others would.

This is a co-written article of Shares Investment, which lays out the analytical ideas and thoughts of the authors, who are well versed in investments and market concepts.

Epicentre Hldgs  -- -- --   
Business: Co engages in the retail of Apple brand products, and third party and proprietary brand complementary products. [FY18 Turnover] Apple brand (73%), services (19.7%), third-party brand (7.3%).

Insight: Feb-19, 1H19 revenue plunged 68.4% mainly due to t... Read More


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