KUALA LUMPUR: Tomei Consolidated Bhd is strategically positioned for robust sales during the upcoming Hari Raya period, historically driving sales for the company's 916 gold products.
Hong Leong Investment Bank Bhd (HLIB Research) said this, coupled with margin expansion, is expected to yield strong results for the second quarter ending June 30, 2024 (2QFY24).
"Tomei is currently trading at a trailing 4.3 times price-earnings, significantly lower by 57 per cent compared to its 10-year average of 10 times.
"The combination of undemanding valuation, coupled with the excitement surrounding earnings from the festive season and the buoyant gold price, should lead to a re-rating in the share price, we reckon," it said in a note.
Meanwhile, HLIB Research said the global gold price experienced a significant rally in March, reaching a record high of US$2,195 per ounce before mildly retracing US$2,182 per ounce yesterday.
The investment bank noted that this was fuelled by the anticipation of an imminent interest rate cut by the US Federal Reserve (Fed).
"This surge has not only sparked interest in gold-related counters like Tomei but also propelled their share prices upward.
"While a sustained high gold price may have a limited long-term impact on Tomei due to the eventual balancing effect of a higher average selling price (ASP) to offset increased gold restocking costs, the current regional gold price spike presents a short-term boon for Tomei," it said.
HLIB Research said this is primarily due to the temporal discrepancy between existing inventory and the elevated gold price, resulting in margin expansion.
It added that Tomei's strategy of consistently replenishing inventories without speculation on gold prices reinforces this benefit.
Consequently, it said the recent surge in the global gold price is poised to drive margin expansion for Tomei until the older inventories are fully sold.