Mainstream
Cheetah slows down amid tough times
F Saad 
Despite the tough operating environment, Cheetah still achieved a modest profit last year
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CHEETAH Holdings Bhd needs a catalyst to boost its financial performance given the lacklustre garment manufacturing business and reduced consumers spending.

The current market scenario has resulted in its revenue remaining stagnant over the last five years.

The company’s main business is product development, designing, marketing and retailing of sports apparel and accessories, and casual wear under its brand.

Its challenges are not unique. Other players also face similar pains, with some garment manufacturers changing their business direction to diversify into property development and construction.

Cheetah’s profit declined 79% to RM2.27 mil in FY16, from RM10.86 mil in 2012. Earnings per share have also declined from 8.52 sen in 2012 to 1.91 sen last year.

The recent minimum wage increase, weak ringgit, and overall high cost of materials narrowed profit margins to a point where doing business has become tough.

The retail business is subject to seasonal or cyclical factors where local festivals, school holidays and carnival sales generally impact its performance.

Ever-evolving technology and its impact on consumer spending habits mean clothing manufacturers and retailers have to stay one step ahead of the curve.

Sagging consumer confidence is adding to retail sector woes. The Malaysian Institute of Economic Research (MIER) Third Quarter Outlook 2017 says global and domestic uncertainties are taking a hit at income and job security.

MIER’s consumer sentiment index dropped 3.6 points in Q3 this year to 77.1.  And as household incomes shrink, consumers get more cautious.

 

Stiff competition

The poor economic factors are further compounded by stiff competition from online portals, most of which focus on retail and consumer goods.

Online retailers and popular sites like Lazada and AliExpress provide local garment manufacturers with stiff competition.

Cheap imported clothing from China and Asean have flooded the market over the past several years.

But despite the tough operating environment and challenging external macroeconomic factors, the company managed to achieve a modest profit last year.

For Q4 FY17 ended June 30, Cheetah’s net profit increased 152% to RM5.11 mil from RM2.02 mil in the previous corresponding period, boosted by festive sales.

Year-to-date, unaudited revenue was RM125.7 mil – down slightly from RM126.69 mil in FY16. Cumulative net profit was RM1.78 mil – falling 22% from RM2.27 mil.

The company plans to continue in much the same path by cutting costs and monetising inventories.

“Despite an anticipated overall slowdown in consumer spending, Cheetah will continue sustaining or improving its positive performance in the next financial year by sourcing from reliable suppliers at competitive prices.

“We will also trim direct costs, review less profitable or unprofitable consignment counters as well as profitable counters to sustain positive results.

“At the same time we will monetise inventories to maintain a strong positive cash flow position,” says Cheetah in its results filing.

 

Silver lining

Despite the bleak outlook, there may be a silver lining for the retail sector as the year comes to a close.

The coming Christmas and year-end mega sales may just lift consumer sentiment and give the retail sector a breather.

“Consumer shopping plans for the rest of the year are looking up. This euphoria is likely due to the country’s year-end mega sale festive carnival which is expected during this time of the year,” MIER says in its report.

And it may be just what Cheetah needs at the moment.

“Cheetah is a household brand name for those who grew up in the 80s and 90s.

“Back then, we produced more practical, good quality clothing for school children. That image has not changed.

“Since the early 2000s though, there are many sports discount outlets offering cheap, branded clothing.

“The boom in e-commerce means consumers can buy items from anywhere in the world at little additional cost.

“The use of social media and branding in popular culture also influences tastes and trends at a very rapid pace, especially among youths.

“Consumers are spoilt for choice these days and it has been hard for Cheetah to keep up,” says a marketing consultant.

Established in 1977, Cheetah is run by the Chia family. It holds the single largest stake in the company through Chia Yoon Yuen Holdings Sdn Bhd (47.24%). 



This article first appeared in Focus Malaysia Issue 256.