Epicentre Holdings

[vesfreq]

When valuing a company, we see what are its strengths, where the future profits are going to come from, how easy it is to duplicate its business, whether business can be sustainable in the long run etc It is much easier to spot a bad company from a good one. Epi centre is an easy one, it is not very different from any other Apple reseller, there is nothing to differentiate itself from its competitors, it does not own rights to anything as far as I know, there is little or no value taht can be associated to its business right now, its margins show how much pricing power Apple has over its re-sellers/vendors. A good business will spend one dollar and get ten back. A bad business will spend 10 dollars and get 5 back.

I would be very worried if I am the boss of Epicentre now. 2 Things he could do 1. Stick to the current path, expand margin, control cost. 2. Go into a new business, preferably related business because the current model is not going to last, with or without apple setting up its own store.

The coupon rate itself is already exceeding the gross margins about 9 to 10%, according to the 2015 annual report. It means that Epicentre will have to sell more goods to cover cost, as compared to take supposedly cheaper term loans from the banks. 

I am quite doubtful if it can even sustain higher sales volumes. The sales trend on the 2015 report reflects a somewhat steady "flat" pattern over the past 5 years. 

If the company head towards doing more of the same, it will be very worrying. It is literally more convenient to order phone accessories on qoo10, ebay and other online platforms. As for mobile phone, there are many alternatives today compared to 5 over years ago. 

Apple offering a low price phone is in a way diluting the margins and the premium attached on apple products. "Commoditising" may not be the best move, but may be the most viable move forward.

Epicentre faces real challenges with exchange risk (not sure how severe), manpower cost, rental costs and threat of substitutes. I wonder how heavily hedged they are. It will be scary if they pay in USD and sell in SGD. The risk to margins is very real. Then again, i have not read the report in great detail. 

Not vested for now and not likely to be vested in the future.