Unless otherwise stated, abbreviations and
definitions used throughout this announcement shall be the same as those in the
announcements made on 26 March 2015 in respect of the TGSB Acquisition.
Further to the Company's announcements dated 26
March 2015 in relation to the acquisition of 20.25% equity interest in Time
Galerie (M) Sdn Bhd (“TGSB”) [TGSB Acquisition], Bursa Malaysia had on 27 March
2015 requested for some additional information to be released.
We are pleased to provide below the additional information
requested by Bursa Malaysia in its letter dated 27 March 2015:-
1. List of the 73 retail outlets owned by TGSB and their
geographical locations are detailed as follows:
|
Geographical Location
|
Name and Number of Stores/Counters
|
|
Northern
Region
|
60 Minutes (1 store)
Time Galerie (8 stores)
G-Factory (1 store)
Edessa (3 counters)
|
|
Central
Region
|
60 Minutes (2 stores)
Time Galerie (10 stores)
G-Factory (7 stores)
Edessa (9 counters)
Casio (4 stores)
TG Xpress (1 store)
|
|
Southern
Region
|
60 Minutes (2 stores)
Time Galerie (5 stores)
G-Factory (2 stores)
Edessa (4 counters)
TG Xpress (1 store)
Franchise (1 store)
|
|
East Coast
Region
|
Time Galerie (2 stores)
G-Factory (1 store)
|
|
East
Malaysia Region
|
Time Galerie (7 stores)
G-Factory (2 stores)
|
Note: All the above retail outlets/counters are operated on premises rented
from third parties.
2. TGSB owns two small properties namely, a Double-storey Shophouse
located in Sentul, Kuala Lumpur and a Single-storey Terrace House located in
Taman Sentosa, Johor, with original costs of investment of RM169,278.15 and RM133,000
respectively and net book values of RM147,889.58 and RM111,400
respectively.
3. The
Purchase Consideration was arrived based on the future potential earnings of
TGSB Group after taking into consideration the prospect and challenges/competition
of the industry .
Prospects
Good Business
Performance
TGSB’s business performance is supported by relatively strong
growth during the last few years, highlighted as follows:
Based on the unaudited results of TGSB for the financial year ending
31 December 2014:
i) Revenue grew by approximately 15.2% amounting to RM45.3 million as
compared to the preceding financial year; and
ii) Profit before tax grew by 12.0% as compared to preceding financial year.
Between 2011 financial year to 2013 financial year, the financial
performances of TGSB were as follows:-
Revenue grew at an average annual rate of 16.9%;
Profit before tax grew at an average annual rate of 44.7%.
The Board believes that the strength of TGSB financial performances in
the last three financial years will provide a platform for the continued growth
and success of the business.
Competitive Advantages
TGSB is
primarily a retail chain operator of timepieces (watches, clocks, gifts and
other accessories). As of 23th March 2015, TGSB has a total of 73
wholly owned outlets in Malaysia. All of TGSB retail outlets operate under its
proprietary “Time Galerie”, “Time Galerie Xpress”, “60 Minutes”, “Edessa”,
“G-Factory” and “Casio” brand names which cater to all income and age groups.
TGSB’s success as a retail chain operator is proven by the fact that
it has the widest geographical coverage in Malaysia. With this wide
geographical coverage, it provides TGSB extensive market coverage to reach its
end-consumers.
In Malaysia, the timepieces industry’s total import of watches and
clocks was approximately RM1.4 billion in 2013 (Source: Statistics Department of Malaysia), which provides TGSB
with a platform for future business growth.
TGSB operate in a market where there are many players but with its
wide coverage of outlets, it has competitive advantage.
Being
the widest geographical coverage timepieces retail chain store operator, TGSB
has established a strong brand name and reputation, has economies of scale, strong
representation in shopping malls, hypermarkets and departmental store and extensive/variety
of brands, which added to its competitive edge.
Challenges/Competition
The overall level of competition among retail operators
in timepieces in Malaysia is high as there are many players competing in the
industry. Nevertheless, the timepiece retailing industry in Malaysia is
sufficiently large to accommodate the many operators in the country; and
Barriers
to entry into the operation are relatively low for operators with only one
outlet. This is substantiated by the large number of operators in the industry.
However, operators with a network of chain stores will have an added advantage
over the smaller players due to its economies of scale which will reduce its
operating costs and hence better profit margins.
4. The financial information of TGSB Group for
the past 3 years are summarised as follows together with commentaries:
|
Financial Year
|
Audited
|
Unaudited
|
|
2012
(RM)
|
2013
(RM)
|
2014
(RM)
|
|
Revenue
|
32,729,960
|
39,340,105
|
45,293,824
|
|
Profit from Operations
|
4,879,328
|
7,964,242
|
8,916,524
|
|
Finance Cost
|
-
|
-
|
-
|
|
Net Profit before Tax
|
4,879,328
|
7,964,242
|
8,916,524
|
|
Profit after Tax
|
3,632,818
|
5,919,694
|
6,754,575
|
|
Non-Current Assets
|
1,471,079
|
1,898,681
|
1,683,695
|
|
Trade Receivables
|
1,440,755
|
1,428,996
|
1,613,545
|
|
Inventories
|
11,596,576
|
15,609,880
|
20,223,828
|
|
Cash in Hand and at Banks
|
12,813,289
|
13,566,794
|
16,907,122
|
|
Current Assets
|
26,989,302
|
33,844,079
|
39,962,057
|
|
Trade Payables
|
3,794,806
|
4,165,059
|
3,352,687
|
|
Current Liabilities
|
5,857,198
|
7,219,883
|
6,368,296
|
|
Net Total Assets
|
22,603,183
|
28,522,877
|
35,277,456
|
|
Share Capital
|
4,000,000
|
4,000,000
|
4,000,004
|
|
Retained Profits
|
18,603,183
|
24,522,877
|
31,277,452
|
- As shown in the table above, sales of TGSB has grown at a compounded
annual growth rate (CAGR) of 6.71% for the past 3 financial years (i.e.
from FYE 2012 to FYE 2014).
- The net profit before tax had increased
substantially from RM4.88 mil to RM8.92 mil at CAGR of 12.82% from FYE
2012 to FYE 2014.
- The trade receivables has increased at a CAGR of 2.29% over the
last 3 financial years under review, which was slower than sales growth
(i.e. CAGR of 6.71%).
5. The purchase consideration for the acquisition of 20.25% equity
interest in TGSB is RM14.175 million, which is equivalent to a price earnings
multiple of 11.8 times based on the net profit after tax of RM5.9 million for
FYE 2013. If based on the unaudited net profit after tax for the FYE 2014, the
purchase consideration represents a PER of 10.36 times.
As a comparison, the PER of
companies involved in the retail industry and distribution of timepieces in the
region are as follows:
|
Market Peer
|
Stock Exchange
|
PER (without extraordinary
items)
|
|
Marco
Holdings Bhd – watch distributor
|
Bursa Malaysia
|
9.11
|
|
Stelux
Holdings International Ltd - City Chain operator
|
Hong Kong
|
14.56
|
|
Sincere
Watch (Hong Kong) Ltd – Luxury timepieces distributor & retailer
|
Hong Kong
|
30.00
|
|
Parkson
Holdings Bhd – Departmental store
|
Bursa Malaysia
|
11.89
|
|
AEON
Co.(M) Bhd - Departmental store
|
Bursa Malaysia
|
20.2
|
Premised on the above, the
Board is of the view that the Purchase Consideration is justified and
reasonable in view of the future growth prospect for TGSB.
6. The Group acquired only 20.25% equity interest in TGSB as at
this point in time only this block of shares was available for sale at the
Purchase Consideration. However, the TGSB Acquisition allows the GBH Group to
equity account its investment in TGSB.
7. The Proposed Acquisition allows the GBH Group to broaden its
earnings base by tapping into retailing business while maintaining its ceramics
building materials businesses, the prospects of which remain challenging.
The GBH Group expects to tap on the experience and knowledge of the management
and operations team of TGSB to grow the retaining business.
8. Prospect of TGSB
Group:
The prospect for the TGSB Group is
good in view that the TGSB Group has in place a business plan which is focused on
the following areas:-
Continue expansion of its retail
network to more towns thus providing ease of accessibility and convenience to
its customers;
Expansion of its product range to
provide a wider variety of choices to customers, which is part of its strategy
to cultivate customer loyalty and attract new customers to contribute to the
growth of its businesses; and
Cultivate professionalism in employees
with a set of systematic approach to handle the daily operations.
9. Risk and Mitigating
Factors:
Sustaining Growth in Revenue and Profit
The Board has carried out a
due diligence audit on TGSB Group and is confident of the performance of TGSB
which is recognized as the largest timepieces retail chain in Malaysia by the
Malaysia Book of Records. TGSB will continue to invest in opening new outlets
and targets to open an additional 26 outlets throughout Malaysia in year
2015.
Changes in Laws/Taxes
The Board views such risks
as a macro-environmental factor as the whole industry will be affected, for
instance, the imposition of GST by the Government. Notwithstanding this, the Management
of TGSB will put in extensive marketing efforts so as to mitigate impacts of
such risks on TGSB’s performance.
iii. Risk Relating to Brand
Recognition and Product Offerings
TGSB relies on its
vendors/principals to maintain favourable brand recognition of their respective
brands, which TGSB often has no control over the brand management efforts.
Notwithstanding this, the Management of TGSB continues to look for new brands
in order to diversify into multi-brands.
TGSB offers variety of
models and product ranges that cater to different segments of consumers and
functionality/usage. Hence, the Board believes that product offerings risk is
somewhat minimized.
iv) Shift in Market Demand
/Consumer Tastes
Changes in consumer tastes
and preferences for timepieces could reduce demand and adversely affect its sales
and profitability. The Management of TGSB will consistently monitor these
trends in order to source for products which suit preferences of customers.
