Stock Watch — Atlan Holdings: Why are margins in duty free sales falling steadily? (VIDEO)

It says it will continue to focus on its core businesses while ensuring that it remains competitive, without giving a profit forecast.

The company just announced earnings for Q3 FY14:

Revenue: +10per cent to RM203.6 million
Profit: +6per cent to RM35.6 million
Cash flow from operations: (RM90.1 million) vs RM41.4 million
Dividend: 5 sen per share, special dividend of 15 sen per share vs 0 sen per share

Atlan Holdings owns 81.15 per cent of Duty Free International, which is listed on the Catalist board of Singapore.

Duty Free International mainly operates shops selling alcohol, chocolate, tobacco products, perfumery and cosmetics within duty free zones.

Its duty free operations contribute most of its revenue.

The group also owns companies that are involved in automotive parts, and the property and hospitality industries.

Atlan Holdings said its revenue increased because it made its prices more competitive.

But its automotive parts segment saw less business due to lower demand from customers.

Its property and hospitality segment also saw lower revenue due to lower revenue generated by its subsidiary, Blossom Time Sdn Bhd’s property development activities.

Despite that, Blossom Time incurred lower expenses and had better cost savings, and this led to higher profit for the segment.

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1. Why is its duty free segment’s profit margin declining steadily?

It seems that the profit margin for its duty free business was better last year.

But it has been steadily declining with each passing quarter – from 20.6 per cent in Q1FY12 to 16.4 per cent in the latest quarter, Q3FY13.

The company mentioned in its Q3 statement that it made the prices of its products more competitive. Although it did not mention that in its Q1 and Q2 statements.

Why is its profit margin going down so steadily?

2. What are its plans for its automotive parts business?

Before buying Duty Free International, Atlan Holdings was mainly involved in automotive parts.

Its automotive parts business has been suffering from lower demand for the past two quarters while its revenue was flat in Q1.

What has Atlan planned to improve its automotive parts business?

3. What is the state of its property segment?

Atlan Holdings is involved in property development with revenue from the segment coming mainly from subsidiary Blossom Time Sdn Bhd, which according to its website, is developing Ferringhi Park in Penang.

But there is no information on the units sold and management has not revealed any details about its operations.

What is the state of its property segment?

4. Will duty free business stagnate?

The duty free business is Atlan’s cash cow for now.

But it is a business that is locked within its premises (or duty free zones) with little opportunity for expansion.

How does Atlan intend to expand its duty free business and make sure it does not stagnate?

5. What investment opportunities is it targeting?

Atlan bought over its duty free business in 2011, which is now its main revenue generator.

With the amount of cash in hand, is it planning to expand by buying over another business?

6. What role does Berjaya Corporation play?

Berjaya Corporation owns 26.38per cent of Atlan Holdings.

How does it affect Atlan’s decision making and business plans?

7. Where is it going with palm oil?

Atlan’s palm oil operations are a small part of the group.

According to its annual report, the value of its oil palms have increased by 27 per cent to RM4.2 million in FY13, while sale of fresh oil palm fruit bunches (FFBs) increased to RM1.5 million from RM248,000.

What are its plans for its palm oil operations?

We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.

So far, we have not had a reply (which is why you are seeing this message). — Investor Central

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