Should One Invest In Gold And Jewellery Business?

Posted yesterday on Star Business, Tomei MD: Gold and jewellery business is not all glitter

Some interesting comments from that very frank interview.

• He said the group would weather the current economic crisis and hoped to maintain its turnover and achieve a slight growth in net profit this year.
  
  For the year ended Dec 31, 2007, Tomei made a net profit of RM12.6mil on revenue of RM223.8mil. For the nine months ended Sept 30, it recorded a net profit of RM14.7mil against RM8.7mil in the previous corresponding period.
  
  “We are not so badly affected by the economic crisis possibility due to the festive season. Typically, sales booms during the second half of the year,” Ng said, adding that gold remained a good investment option.
  
  Ng said Malaysia was still cushioned from the global crisis but getting Malaysians to spend was difficult.
  
  “We are also competing for the consumer ringgit with other stores,” he added.
  
  “We had already planned our cash-flow last year when the crisis started in the US so that the group can ride through the crisis,” he said.
  
  Going forward, Tomei will open more retail outlets and improve its information technology system. The group has budgeted RM10mil for capital expenditure this year.
  
  To a question, Ng said: “As a retailer, I cannot be sitting around doing nothing. When there is a crisis, there is an opportunity and the fittest survives.
  
  “It is good to be conservative but if we do not do anything, people might forget us. Either we grow or we stop operation.”
  
  “A lot of people are talking about cutting cost and retrenchment of late. Personally, I think retrenchment is quite demoralising for the staff,” Ng said.
  
  He pointed out that Tomei had embarked on group-wide cost-saving initiatives before the crisis started.
  
  Also top on Ng’s agenda this year is paring down the group’s gearing which is close to one time.
  
  “To some our gearing is relatively low, but to us it’s very high. In fact, it is the highest in our history. We have to do something about it,” he said.

Let's look at some of Tomei's listed competitors.

Poh Kong earnings was pretty impressive back in December, Quarterly rpt on consolidated results for the financial period ended 31/10/2008

Comments made by Poh Kong.

• The Group's revenue for the first quarter under review was higher at RM161.982 million as compared to the revenue in the corresponding quarter last year of RM135.102 million; an increase of RM26.880 million. The increase in revenue was attributed to revenue from the new outlets and existing stores. The Group's profit before tax in the current quarter at RM13.998 million was higher as compared to the profit before tax of RM12.810 million in the corresponding quarter last year; an increase of RM1.188 million. The increase in profit before tax was mainly attributable to an increase in demand of jewellery during the festive season.
  
  For the current financial year, the Group will continue its drive to build market share by enhancing and differentiating its product offerings to its targeted market segments. Towards this purpose, the Group is actively evaluating various initiatives and opportunities to attract new customers through the introduction of new product designs, enhanced customer service and retail branch network expansion.
  
  The Board of Directors expects the performance of the Group for the financial year ending 31 July 2009 to be satisfactory.

Its other competitor Degem announced its earnings last night. Quarterly rpt on consolidated results for the financial period ended 31/12/2008

Degem's earnings were rather shockingly poor.

Net earnings slumped to a mere 255 thousand! Same period last fiscal year Degem posted earnings of 5.696 million!!!

And Degem painted a grim picture in its earnings notes.

• For the financial year ended 31 December 2008, the Group registered a revenue of RM212.9 million compared to RM157.9 million in the preceding year, an increase of 35.0%. Net profit was RM14.2 million as compared to RM17.9 million in the preceding year. The lower profit is due to increase in operating costs and reduction of margin in a weak market.
  
  In the fourth quarter of year 2008, the Group registered a revenue of RM48.4 million and net profit of RM0.14 million versus a revenue of RM53.4 million and net profit of RM5.0 million recorded in the immediate preceding quarter. The decrease in profit is due to the lower gross margin affected by the global economic crisis.
  
  Performance is expected to slow down due to the current global economic downturn. In view of this, the Group has taken measures to mitigate any negative impact with prudent costs control, optimum inventory holding level and is cautiously optimistic that the Group’s results for the coming year is expected to be satisfactory.