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New Regulations Hurt EuroSport Global Revenue
Tradeable, Tradeable Ideas | 03 June 2014
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By: Lim Si Jie
Articles (169) Profile
  1. Topline fell sharply while bottom line was kept positive due to one-off sale of Teban Gardens Crescent
  2. The upcoming 12 months will be challenging for EuroSport Global
  3. Success of future plans and business strategies are still unknown

A Less Than Optimistic Year For EuroSport

Revenue for the year fell 54 percent to $39.8 million as compared to $86.4 million in the preceding financial year. The decline in topline was largely due to new regulations introduced by the government in 2013 which gave rise to additional vehicle registration fees and loan financing restrictions that dampened the automobile sales market for both new and pre-owned automobiles.

New regulations state that 50 percent of the new vehicle purchase has to be made in cash. EuroSports Global deals high-end automobiles like Lamborghini. A new Lamborghini would easily need an offlay of $500,000 in cash as a direct impact from the new regulations. That amount is equivalent to the cost of a HDB or Executive Condo (EC).

The decrease in revenue from Sales of Automobiles was also due to fewer new Lamborghini automobiles sold: 15 in FY2014 compared to 42 in the preceding financial year. Besides the new government regulations, demand for new Lamborghini automobiles in FY2014 was also affected by customers withholding their purchases in anticipation of the arrival of the new Huracán model in 2014, replacing the Gallardo model, which is at the end of its product life cycle.

The Group’s earnings were boosted mainly by a one-time gain of $16.2 million arising from the successful completion of the sale and leaseback arrangement relating to its premises at 30 Teban Gardens Crescent.

Future Outlook

The next 12 months is expected to remain challenging for EuroSport Global because of intense competition among automobile distributors in the mature but small Singapore market. However, the launch of Lamborghini’s new Huracán model in September 2014 and Alfa Romeo’s new model 4C in July 2014, could stir up some excitement among its customers.

The new Huracán is set to hit the market in September 2014

This is expected to have a positive impact on sales as the luxury and ultra-luxury automobile segments are model driven markets and sales typically increase when a new model is launched.

To drive growth, the Group will also be utilising the net proceeds from its IPO, where $6 million had been allocated for the expansion of its operations locally and in other markets and for diversification into other luxury lifestyle businesses. The remaining $2.46 million in net proceeds, which had been allocated for general working capital, had already been utilised.

Business Strategies and Future Plans

EuroSport intends to grow their distribution network locally and into other emerging markets in the region to expand their operationgs. EuroSport also plans to diversify into other businesses in the luxury segment in order to leverage on its established pool of high net worth customers.

The aforementioned strategies will enable the Group to achieve its long term goal to become a luxury lifestyle business with a diversified portfolio of bespoke products. However, it is still unknown whether they are able to clinch any dealerships to boost its business.

#Bearish In The Upcoming FY
Given the tough and challenging conditions that EuroSports Global face in its sector, I am rather bearish on its share price as it does not meet the fundamental soundness. It does not appeal to me that EuroSports even with its proposed business strategies.

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Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

EuroSports Global  -- -- --   
Business: Co distributes and retails imported luxury automobiles as well as luxury timepieces. [FY18 Turnover] Automobiles distribution (96.7%), experiential business (1.9%), watches business (1.4%).

Insight: May-18, FY18 revenue increased by 18.5% mainly con... Read More

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