The business model is simple enough: pull people into one’s stores by offering Apple products at a slim margin and make one’s money on the accessories, the after-sales service, and so forth. Not complicated and there are probably only three ways to muck it up: (1) People no longer like Apple products; (2) Apple decides to sever its relationship with Epicentre; (3) the Singapore Dollar takes a nosedive.
The last of these is, for our purposes, the item of interest. The USD has appreciated against the Singapore dollar. Since Epicentre buys its Apple-branded inventory in USD, its gross margins on Apple products have nosedived, turned negative, and made their effects felt all the way down the income statement. Plunging earnings, plunging share price.
Epicentre has now negotiated an arrangement with Apple whereby its Singapore operations (80+% of revenue) may now buy Apple-branded inventory in Singapore dollars. Its Malaysian operations (<20% of revenue) will continue to buy in USD.
The upshot is that gross margin should improve by a minimum of ~3.6% and that the earnings margin should therefore improve to a minimum ~4.0% . A 4% net income margin on SGP $180 million translates into an earnings yield of ~41%. And, since Epicenter pays out 85%+ of its earnings, it seems reasonable to expect a forward dividend yield of 35%.
There are some other factors that justify more upside to the valuation – the announced exit from the loss-making presence in PRC, immature new stores in Malaysia, investments in “customer-centricity” that have been expensed – but these are immaterial to the investment case at the current share price.
The shares are illiquid and any buyers will be competing with the company itself.
Disclosure: I am long Epicentre and intend on buying more shares.