This article first appeared in The Edge Malaysia Weekly on February 15, 2021 - February 21, 2021

GOLD prices may be tapering off from last year’s peak, but Poh Kong Holdings Bhd remains optimistic of a better performance this year on the back of resilient demand for gold jewellery and investments.

The gold jeweller believes it is in a good position to register higher revenues this year based on activity in the commodity markets, and is poised to capitalise on demand when the Covid-19 pandemic is under control.

Poh Kong executive chairman and group managing director Datuk Choon Yee Seiong says he expects gold prices to continue to rise in tandem with demand from government vaults and central banks. Added to this is demand from exchange traded funds.

“In times of global uncertainty and market duress, gold has always been the preferred choice of asset class for wealth protection especially. We are confident that Poh Kong’s business will remain viable as gold jewellery and gold investments stand resilient amid a changing and challenging environment.

“Currently, MCO 2.0 [is having] an adverse impact on our business again. Therefore, we have ramped up our capacity for online and digital interaction via social media, live commerce as well as digital marketing activities and mobile applications, to boost sales,” Choon tells The Edge in an email interview.

“The pandemic has led to an uptick in online activity and has pushed many shoppers to make their purchases online. The increased usage of digital channels is expected to outlast the pandemic.

“While we experienced a dramatic rise in online sales growth, the current business size of [this] is insignificant compared to outlet sales,” he says, adding that Poh Kong’s online sales have risen 231% since March 2020.

Choon says business has improved steadily as Poh Kong, which is primarily in the business of manufacturing and trading gold ornaments, precious stones as well as supplying gold bullion, continually develops its products and services to move inventory.

Group inventory stood at RM580 million as at the end of its first fiscal quarter ended Oct 31, 2020 (FYE2021).

Although Poh Kong’s margins have been affected by the current softer gold prices, natural hedging within the group as well as the frequent replenishing of stocks and increase in the sales of higher-margin products have helped stabilise margins.

“The margins will be normalised once the stock turn cycle is complete,” Choon explains.

Commenting on the past year in exchange filings, Poh Kong said although the coronavirus and the implementation of the Movement Control Order had severely impacted the group’s operations and businesses initially, the relaxing of restrictions soon led to an uptrend in sales, as reflected in its results.

For the third quarter ended April 2020, it made a net loss of RM2.3 million compared with a net profit of RM5.4 million in the previous corresponding period.

Losses were reversed in the fourth quarter as it posted a net profit of RM8 million on the back of revenues of RM179 million.

For the first quarter ended Oct 31, 2020, net profit amounted to RM14.6 million, 80% higher than in the same period the year before. Revenue was 8% higher at RM221.9 million.

In a Bursa filing, the group attributed its improved business performance in the cumulative quarters primarily to the global uptrend in gold prices in mid-2020 as well as Poh Kong’s cost control efforts and streamlining initiatives across its operations.

“That has proven Poh Kong’s business viability and readiness for the time when world economies will bounce back after the Covid-19 pandemic is brought under control,” Choon says.

As at end-January, Poh Kong had 91 outlets in the country. It does not currently have plans to expand overseas or to East Malaysia although it has conducted feasibility studies on the latter.

Following news reports of cash-strapped gold investors being allowed to trade the precious metal for cash at jewellers amid movement restrictions, Choon notes it is common practice when gold prices are high.

“Last August, many gold investors liquidated their [gold] investments for cash. As for this period leading up to the Chinese New Year, we have not observed any abnormal trends so far,” he says.

Gold prices hit a record high of US$2,067.15 on Aug 7, 2020, but the trajectory has been down. Last Friday, Comex gold fell below US$1,800 per ounce to close at US$1,791.20.

“Selling momentum was seen at every intraday rebound, pushing prices towards the day’s low of US$1,784.60, before it closed at US$1,791.20. The day range, or difference between the day’s high and low, was US$43.90 — the widest since Jan 8, indicating heightened selling pressure,” RHB Research analyst Joseph Chai says in a report.

He projects that the precious metal could drift lower towards US$1,778.50 and US$1,765.80.

“Given the bearish sentiment, we are keeping our negative trading bias. We recommend traders shift to short positions. Our short positions were initiated at US$1,833.40, or the closing level of Feb 2. For risk management purposes, a stop-loss can be placed at the US$1,867 level.”

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.