ASIA’S LARGEST Apple Premium Reseller, EpiCentre, has more than doubled its stock price since the beginning of this year when DMG-OSK initiated a buy-call on the Catalist-listed stock.
At that time of the report initiation, the stock was trading at 30 cents.
Interestingly, Epicentre was also identified by Expert Stock Screener as a stock which was at a significant discount to its fundamental value and whose chart technicals were strongly bullish when Epicentre was trading at 51 cents about three weeks ago.
Recently, Epicentre surged to 67 cents, nearing DMG-OSK’s target price of 68 cents which is based on 8X FY2011 PE.
The sale of Apple products contributed more than 80% of Epicentre’s group revenues in FY2010 of S$88.1 million.
These were mainly iPhones, iPads, iPods, Mac computers, Apple TVs, as well as accessories like earphones, armbands, charging docks, keyboards, mouse, remotes, cables, connectors and adaptors and software.
Its investment merits are as follows:
Strong growth trajectory
It has six stores in Singapore and has obtained approval for four more. In Malaysia it has three existing stores, and two new ones under renovation and due for opening. It has also obtained the license from Apple to open stores in Beijing and Shanghai, targeted to open by Jun.
Analysts have estimated one million units of the iPad 2 were sold over the first weekend that it was launched last month, compared with 28 days for the original iPad.
iPad 2 is 33% thinner and up to 15% lighter, has a dual-core A5 chip that enables processing to be twice as fast, as well as two cameras to enable video conferencing.
Epicentre’s 1HFY11 net earnings for the six months ended 31 Dec were S$4.7m, up 159% year-on-year while revenues were S$92.1m (+124%).
DMG-OSK expects FY2011 net earnings to double to S$8 million, driven by store expansion and new Apple product launches.
Higher margins from growth in 3rd-party complementary product sales
Other than Apple products, Epicentre represents over 50 principals and carries over 70 brands of products. Popular third party brands include: Bose, Belkin, DLO, Specks, V-moda, and Griffin and products consist of items such as earphones, FM transmitters, speakers and protective casings.
It also retails a wide range of software that includes Adobe (creative software), Microsoft (operating systems and office software), Roxio (CD-Rom disc burning software) and Symantec (anti-virus software).
Although the bulk of sales are generated from Apple-branded products, PBT margin from this segment is thin at 4.8% in FY10. In comparison, PBT margins of third party complementary products were as high as 18.0%.
Sales of third party and proprietary branded complementary products are expected to register strong growth in line with new product launches.
