Fiamma ... UnderValue (Revaluation of Landbank) !!!

Distributor of electrical home appliances and healthcare products. The brands are ELBA, Rubine, Tuscani and Haustern.

Besides lucrative profit margins from its trading and services segment… the company owns decent landbank for property development, including a tract near Jalan Yap Kwan Seng.

Its property projects have a combined GDV of rm1 billion and it has retained certain portions of its commercial developments for rental income, thus adding to its cash pile of rm54 million or 37 sen per share. The rental income per year is about rm3 million per year.

Its decent landbank for property development has not been revalued for many years.

It is trading currently (25 Sept 2014) at 7.5 times historical earnings … which observers say is low given its growing cash pile and reasonable dividend yields.

With net cash per share of 37 sen, shareholders were paying around rm2 for a stake in the company’s businesses of home appliance distribution and property developments.

That Fiamma’s property segment is a key growth driver’s evident in its earnings in its financial year ending Sept 30 2014. In the first three quarters, the segment contributed rm53.12 million to revenue or 21% to overall group revenue of rm252.11 million.

Not only does the figure represent a doubling of revenue from rm20.1 million in the same period in the year before but pre tax margins in the segment have also been encouraging.

Fiamma’s property earnings are set to outpace those of the trading and services segment.

The group’s strategic parcels are held at low cost, which means high development margins. Its presence in the property market will likely broaden, given that its has over em1 billion worth of projects at present (Sept 2014).

As the company has held on to its land, some of it for over two decades, a revaluation to reflect current prices (Sept 2014) could translate into a handsome return on investment for the group. This is because it can now (Sept 2014) unlock the value of its landbank, either via a disposal or by launching projects.

Its total assets have grown from rm325 million in FY2009 to RM421 million in FY2013.

With its steady cash flow, Fiamma has paid out dividends.

Its property division could potentially turn Fiamma into a developer to be reckoned with implying that its shares could fetch a much higher valuation if its exposure to the segment is revalyed upwards.

Assuming a modest profit margin of 10% the property segment’s contribution to the bottom line could be worth tens of millions of ringgit if its launches prove to be successful. Given its prime landbank in KL and JB, the company is slated to launch mid to high end apartments with high potential.

However the company’s core businesses are sensitive to economic cycles, particularly consumer sentiment.