September 19, 2012

DMG & Partners Securities Pte Ltd may have received compensation from the company covered in this report for its corporate
finance or its dealing activities; this report is therefore classified as a non-independent report. Please refer to important disclosures at
the end of this publication.
See important disclosures at the end of this publication 1
See important disclosures at the end of this publication


DMG Research
OSK Research
OSK Research DMG Research
DMG Research

SINGAPORE EQUITY
Investment Research

DMG & Partners Research Corporate Update
Private Circulation Only
CONSUMER





Melissa Yeap
+65 6232 3897
melissa.yeap@sg.oskgroup.com
EPICENTRE
BUY

Price S$0.355
Terence Wong, CFA
+65 6232 3896
terence.wong@sg.oskgroup.com


Previous S$0.310
Target S$0.410

RETAIL


Epicentre is the leading Apple Premium
Reseller in Asia. It has a network of 18 stores
across Singapore, Malaysia and China



Stock Profile/Statistics

Bloomberg Ticker EPIC SP
STI 3,071
Issued Share Capital (m) 93
Market Capitalisation (S$m) 33
52 week H | L Price (S$) 0.558 0.300
Average Volume (000) 17
YTD Returns (%) -21.1
Net gearing (x) 0.2
Altman Z-Score 7.2
ROCE/WACC 3.5
Beta (x) 0.6
Book Value/share (S$) 0.18


Major Shareholders (%)

Teck Loong Foong 58.9
Ann Ann Goh 6.5
Rowsley Sports 5.2
Heng Lam Wai 4.9



Share Performance (%)

Month Absolute Relative
1m 1.4 1.1
3m 9.2 0.7
6m (14.5) (16.6)
12m (29.0) (40.4)

6-month Share Price Performance

0.25
0.27
0.29
0.31
0.33
0.35
0.37
0.39
0.41
0.43
Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12


Expect margins to finally recover, upgrade to BUY

We are upgrading Epicentre from a Neutral to a BUY with a TP of S$0.41,
pegged to 12x FY13F earnings. This represents an upside of 32% in addition to
a yield of 10-13% based on last closing. Earnings improvement in the coming
results should be a catalyst to stock price. We expect the current Apple mania
fad in Asia to spur Apple branded sales. APRs like Epicentre will continue to see
sales grow despite the Apple Online Store as Epicentre is able to offer customers
better bundle deals in terms of extended warranty, discounts on associated
hardware like speakers, keyboards and accessories. FY12 earnings were
affected by at least S$1m one-off costs associated with:- 1) Expansion in China,
2) New M-commerce platform, 3) New CRM programme, and 4) Forex costs.
Excluding the one-offs, net margins would have come in at 1.1%. We believe our
FY13/14F net margin forecast of 1.6%/1.9% is conservative (FY12: 0.3%, FY11:
2.9%, FY10: 3.8%). The Group has historically offered a dividend payout of 90%
and with costs set coming off and earnings starting to kick in, we are confident
management will continue to maintain this generous payout.

No where to go but up. Epicentre was barely profitable in FY12 with net margin
hovering at 0.3%. This is a far cry from a high of 3.8% in FY10 and 2.9% in
FY11. Going forward, we have remained cautious and forecasted a slight
improvement in net margins to 1.6% and 1.9% for FY13/14F respectively.
Earnings are expected to be driven by new Apple branded products and ramp up
in sales of new stores. We also note that the Group has decided to put the
brakes on its expansion into China with its current three stores. As at June 2012,
the Group has 10 stores in Singapore, five in Malaysia and three in China. Going
forward, we expect 1-2 new stores in Singapore and Malaysia respectively.

Brick and mortar wins online stores. While some investors are concerned
over the threat of Apple Online Store eating into Epicentre sales, we do not see a
large impact. Customers generally prefer to purchase from Epicentre as they get
to touch and feel the actual product, enjoy bundle discounts which include
extended warranty and accessories deals which are not offered by Apple.
FYE 30 Jun (S$m) FY10 FY11 FY12 FY13F FY14F

Turnover 88.1 162.6 183.9 205.7 229.1
Net profit 3.4 4.8 1.0 3.6 4.7
% chg YoY 86.1% 40.0% -87.1% 423.6% 33.7%
Consensus Na Na Na Na Na
EPS (S) 3.6 5.1 0.7 3.4 4.6
DPS (S) 1.8 5.0 0.6 3.5 4.5
Div Yield (%) 5.1% 14.1% 1.7% 9.7% 12.7%
ROE (%) 19.1% 24.1% 3.6% 18.9% 25.2%
ROA (%) 12.4% 13.9% 1.6% 7.5% 9.4%
P/E (x) 9.5 6.8 52.9 10.4 7.8
P/B (x) 1.9 1.7 2.0 2.0 2.0
Source: Company data, DMG Estimates

See important disclosures at the end of this publication 2


DMG Research
FY12 Results Review

Figure 1: FY12 Results Review

FYE Jun (S$m) 2H12 2H11 Chg % FY12 FY11 Chg %
Revenue 91.3 70.5 30% 183.9 162.6 13%
COGS (79.8) (60.1) 33% (160.3) (138.4) 16%
Gross Profit 11.6 10.4 11% 23.6 24.2 -2%
Other operating income 0.6 0.8 -23% 1.8 1.4 34%
Interest income 0.0 - nm 0.0 0.0 -62%
Admin expenses (9.8) (9.1) 8% (18.8) (15.3) 23%
Selling & distribution cost (2.9) (2.2) 29% (5.7) (4.5) 26%
Finance costs (0.0) - nm (0.0) (0.0) 1450%
(Loss)/ Profit before tax (0.5) (0.1) 442% 0.9 5.7 -85%
Income tax 0.1 0.1 -51% (0.2) (1.0) -75%
(Loss)/ Profit after tax (0.4) 0.0 -2023% 0.6 4.7 -87%
Minority interest (0.2) (0.0) 1055% (0.4) (0.0) 1770%
PATMI (0.2) 0.0 -557% 1.0 4.8 -79%
Gross profit margin 12.7% 14.7% 12.8% 14.9%
PATMI margin -0.2% 0.1% 0.5% 2.9%
Admin expenses -10.7% -12.9% -10.2% -9.4%
Selling expenses -3.1% -3.2% -3.1% -2.8%


Source: Company data


Figure 2: Actual vs Forecast

Sales FY12A FY12F Var %
Singapore 148.0 137.9 7%
Malaysia 33.5 30.5 10%
China 2.4 2.9 -19%
Total Sales 183.9 171.3 7%


Source: Company data and OSK|DMG estimates

Gross margins impacted by forex. We note that the Group suffered about S$3m loss on
their GP margins from the appreciation of the USD against the SGD. Going forward, Apple
has agreed to allow Epicentre make purchases in SGD hence this should iron out the forex
issue but Epicentre Malaysia will still continue to make purchases in USD. Malaysia
accounts for a smaller proportion of Group sales at 18% in FY12 vs 80% for Singapore.

Retail network now at 19 stores. As at June 2012, the Group has a retail network 18
stores. This includes five in Malaysia, eight in Singapore and three in China. Out of the three
in China, two are located in Shanghai and one in Beijing.

The Group opened a new store in Malaysia in July 2012 at the hip and trendy Bangsar
Village hence it now has six stores in Malaysia. Epicentre has also already gotten Apples
approval for a new store at the upcoming new mall at Jurong Point in Singapore. The mall is
slated to open its doors in 1Q 2013. Finally, we note that management has decided to put
the brakes on its China expansion plans, leaving it at three stores.

Why was Singapore down? We note that while revenue for Singapore rose 6% YoY,
earnings fell by 79% YoY to S$1.1m. This is due to rising rents and headcount costs as new
stores were opened last year which has yet to see sales ramp up to normal levels.
Approximately 10% of labour is foreign.

Singapore is also the Groups headquarters hence all the admin costs which includes
engaging external consultants to implement customer centric initiatives, implementing a new
customer retention management (CRM) programme and conducting training programmes
for customers have all been booked as costs to Singapore.



See important disclosures at the end of this publication 3


DMG Research
SHARE PRICE PERFORMANCE

Figure 3: One year Share Price Performance
0.20
0.30
0.40
0.30
0.60
0.70
0.80
4-!an-11 4-Mar-11 4-May-11 4-!ul-11 4-Sep-11 4-nov-11 4-!an-12 4-Mar-12 4-May-12 4-!ul-12 4-Sep-12

Source: Bloomberg


Figure 4: One year P/E trading band at 23x due to lumpy earnings

-
3.0
10.0
13.0
20.0
23.0
30.0
33.0
40.0
19-Aug-11 19-CcL-11 19-uec-11 19-leb-12 19-Apr-12 19-!un-12 19-Aug-12
























Initiated on 6 Jan 2011
at S$0.30
Delivered disappointing 2H2011
results due to start-up costs in
China
1H2012 results still weak with start
up costs in China.
See important disclosures at the end of this publication 4


DMG Research
FINANCIAL TABLES

Income Statement
FYE 30 Jun (S$m) FY10 FY11F FY12 FY13F FY14F
Revenue 88.1 162.6 183.9 205.7 229.1
COGS (73.8) (138.4) (160.3) (177.9) (198.2)
Gross Profit 14.3 24.2 23.6 27.8 30.9
Other income 1.4 1.4 1.8 2.0 2.0
Distribution & selling exp (2.9) (4.5) (5.7) (6.2) (6.9)
Admin expenses (8.8) (15.4) (18.8) (20.6) (22.7)
Other operating exp - - - 1.0 2.0
EBIT 4.1 5.7 0.9 4.0 5.4
Interest expense - - (0.0) (0.0) (0.0)
Interest income 0.0 - 0.0 - -
PBT 4.1 5.7 0.9 4.0 5.3
Tax (0.7) (1.0) (0.2) (0.8) (1.1)
PAT 3.4 4.7 0.6 3.2 4.3
Minority interests - - 0.4 0.4 0.4
PATMI 3.4 4.8 0.6 3.2 4.3
Balance Sheet
FYE 30 Jun (S$m) FY10 FY11F FY12F FY13F FY14F
Fixed Assets 1.9 2.7 3.8 3.0 3.3
Current Assets 25.4 31.3 35.4 39.4 42.0
Current Liabilities 9.4 14.1 22.1 24.1 26.0
Long-term Liabilities 0.1 0.3 0.4 1.5 2.5
Total Equity 17.8 19.7 16.8 16.8 16.8
Shareholders equity 17.8 19.7 16.9 16.9 16.9
Cash Flow
Net Operating CF 0.4 8.8 1.7 7.4 10.1
Net Investing CF (2.0) (1.6) (2.4) (3.0) (3.0)
Net financing CF 0.6 (1.1) (0.0) (3.2) (4.2)
Net increase/(decrease) in cash (1.5) 5.6 (1.9) 0.4 1.8
Beginning cash 9.9 9.3 14.9 13.0 13.4
Ending cash 8.4 14.9 13.0 13.4 15.2
Growth (%)
Revenue 35.4% 84.6% 13.1% 11.9% 11.4%
EBIT 94.4% 40.2% -84.6% 355.7% 33.4%
PBT 92.0% 39.7% -85.0% 365.4% 33.7%
PAT 86.1% 40.0% -87.1% 423.6% 33.7%
Margins (%)
Gross profit 16.3% 14.9% 12.8% 13.5% 14.0%
EBIT 4.6% 3.5% 0.5% 2.0% 2.3%
PBT 4.7% 3.5% 0.5% 1.9% 2.3%
PAT 3.8% 2.9% 0.3% 1.6% 1.9%
Valuation
P/E (x) 9.8 7.0 54.4 10.4 7.8
P/B (x) 1.9 1.7 2.0 2.0 2.0
ROE (%) 19.1% 24.1% 3.6% 18.9% 25.2%
ROA (%) 12.4% 13.9% 1.6% 7.5% 9.4%
Dividend Yield (%) 5.1% 14.1% 1.7% 9.7% 12.7%


Source: Company data and DMG estimates



See important disclosures at the end of this publication 5


DMG Research

DMG & Partners Research Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage

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