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Tuesday, 10 January 2017

(The Edge Financial Daily) Poh Kong sees rise in gold demand as ringgit falls

BY CHESTER TAY & ALEXIS SEE THO

KUALA LUMPUR: Over the past two years, as the ringgit depreciates against the US dollar, Poh Kong Holdings Bhd has been seeing demand for gold and precious metals firming up in reverse, more so in recent months after the US presidential election last November.

The demand rise was not drastic, however, like it used to be when times turned uncertain — such as the glob-al financial crisis back in 2008/2009 — but rather a gradual one, according to Poh Kong head of corporate affairs Margaret Hon, speaking to reporters after the company’s annual general meeting yesterday.

Aside from gold, investors are now wise to more investment alternatives that could also be regarded as “safe havens” during volatility.

“So, investors’ portfolio keep changing, but we do see an increasing trend. In fact, after Brexit and Trump’s victory, we actually expected a hike in global gold prices, but it did not happen — that was something out of our expectation,” she said.

Hence, Hon said it is difficult to generalise on gold investment trends now because different investors have different ways of hedging currency risk. Nevertheless, gold bullions and gold bars remain popular and Poh Kong estimates that 15% of its total revenue is derived from its gold investment products, which come in the form of 10g to 20g gold wafers, as well as 1kg gold bars.

The 22 carat gold — also termed 916 gold for its 91.6% purity — makes up 90% of Poh Kong’s products. Retail prices for such gold products have risen 10% in the past one year, almost in tandem with the rise in global gold prices.

Gold, which was trading at US$1,176 (RM5,256.72) per ounce, at the time of writing yesterday, has gone up 7.5% from US$1,094 per ounce in the same period last year.

According to Poh Kong executive director Ermin Siow, the group retains an average 25% gross profit margin across all its products.

“Malaysia has the highest gross margin for gem set jewellery globally,” he observed.

For the first quarter ended Oct 31, 2016 (1QFY17), Poh Kong’s net profit jumped over four times to RM1.77 million from RM336,000 a year ago, as revenue grew 7.65% to RM185.47 million from RM172.30 the year before.

Siow said Poh Kong’s FY16 results were clouded by the post-goods and services tax (GST) effect, which dampened consumer sentiment severely during the initial phase of implementation.

“It has been two years since [the] GST implementation and people are slowly getting used to it. So we hope sales will recover, [the beginnings of which we think is] seen in our 1QFY17 numbers,” he added.

Meanwhile, Poh Kong’s executive chairman cum managing director Datuk Eddie Choon anticipates gold and gem set jewellery demand to remain resilient in 2017 despite persistently low consumer sentiment and a weaker ringgit.

“We see higher sales during festive seasons, and the trend still persists, showing that demand is still resilient.

The weakening ringgit actually helps us because people [tend to] buy more gold to hedge against the local cur-rency versus the US dollar,” he said.

Nevertheless, Choon conceded 2017 will be a challenging year for the company due to declining household disposable incomes and higher cost of living. To counter such challenges, it intends to introduce more products to cater to younger customers, like entry-level designs priced at RM3,000 and below.

“We are consolidating our outlets — we have 97 now — but hope to gradually raise it back to 100 stores in FY17. We closed some non-performers, but we still see demand in certain growth areas, like Johor,” said Choon, who owns a 64% stake in Poh Kong.

Poh Kong is planning three to five new stores this fiscal year, two in Johor Baru, where they see the largest growth potential.