KUALA LUMPUR: Fiamma Holdings Bhd's earnings will likely decline by 13- 16 per cent from 2022 level, driven by substantial discounts and rebates on existing inventory.
Affin Hwang Capital noted that Fiamma is facing a slowdown in its trading and services segment, which distributes electrical and electronics (E&E) products (historically 88 per cent of group earnings).
"We maintain our view that the surge in demand for electrical appliances during the pandemic will continue to taper down, given the absence of replacement demand for home and kitchen products in the near term," it said in the note.
Affin Hwang said consumer sentiment has turned weaker, with individuals now prioritising essential items over discretionary spending due to the rising cost of living.
The firm believes that Fiamma will face waning sales of E&E products.
Affin Hwang maintained its "Sell" call on Fiamma with a target price of 59 sen.
Fiamma, it said, is currently overvalued as it is trading at a 15 times forward PE, more than one standard deviation above its five-year mean.
The key upside risks for Fiamma are higher-than expected sales from its property development segment, improvement in consumer sentiment for products under its trading and services segment and higher-than expected operating margins.