(BUY, S$0.38, TP S$0.53)
From June to August year-end. The Hari Raya festive period (from start of fasting month till Hari Raya day) will move forward by 11 days every calendar year, based on the Muslim calendar. It will soon move towards Second Chance’s current year-end, which falls in June. To enhance its operational efficiencies and to ensure a smooth running of the business during its busy festive season, management will be changing its financial year-end from 30 June to 31 August. Following the change, the next set of financials will cover a 14-month period from 1 July 2011 to 31 August 2012. We maintain our BUY recommendation and TP of S$0.53, based on DDM.
Active management to minimise loss of sales. The two months leading up to Hari Raya is when Second Chance records the highest sales and profits in its retail business. With a June year-end, Second Chance would need to close its stores to conduct a stock take at end June. With Hari Raya occurring in mid-August, and three outlets in Singapore and 36 across Malaysia, a one-day store closure would result in a significant loss of sales during its busiest period. The new year-end would also allow its directors and key management to focus on securing maximum sales and profits during the peak period, instead of having to place attention on auditing and reporting at the same time. The economic uncertainty is not likely to have a major impact as it targets a niche market.
Plans to expand real estate business while keeping retail business. Second Chance is still on the lookout for real estate opportunities to grow the business, with an aim to achieve a market capitalisation of at least S$1b by 2022. It is open to real estate activities such as property development (via joint ventures), and acquisition of distressed properties.
Attractive dividend yield. At S$0.38, Second Chance is trading at an attractive 8.0% yield, which we believe is sustainable, given its stable operating cash flow.
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