KUALA LUMPUR (Dec 13): Classic Scenic Bhd's move to diversify into fashion retail business has attracted buying interest in the stock, which has rebounded from its recent low of 40 sen.

The counter opened at 42 sen in Wednesday morning trade, and climbed 12.2% to a three month-high of 46 sen in the first trading hour after the opening bell.

At the time of writing, the stock had pared some of its gains to hit 45 sen — still up four sen or 9.76% from Tuesday — giving it a market capitalisation of RM170.72 million. Trading volume stood at 2.05 million thus far.

Year to date, however, Classic Scenic's share price had fallen 38.36%.

On Tuesday, the group proposed to acquire a 51% stake in Redina Malaysia Sdn Bhd, a shoes and clothing company, for RM35.7 million cash to reduce the group’s dependence on its existing wooden picture frame moulding business.

Redina is an importer, general merchant and dealer of, among others, shoes, clothing and articles, with a focus on apparel and undergarments. It is the brand licensee in Malaysia for Renoma, Jockey, Moto Guzzi, Alfa Romeo, Valentino Creations, Nautica, Crocodile, Arnold Palmer and Beverly Hills Polo Club.

As at Sept 30, 2023, Classic Scenic's cash position stood at RM20.6 million. As such, the group has also proposed a 30% private placement to raise up to RM38.7 million. Of that, a total of RM14 million will be utilised for payment of the first tranche of the proposed acquisition, representing 20% equity interest in Redina. The second tranche, covering the remaining 31% equity interest in Redina, will be acquired for a total purchase consideration of RM21.7 million funded through internally generated funds and/or bank borrowings, according to Classic Scenic. 

The group is in the midst of broadening its income streams by identifying and engaging in new viable businesses, as it faces dwindling revenue. On Nov 20, it announced that its wholly-owned unit Lim Ket Leng Marketing Sdn Bhd had incorporated 10 wholly-owned subsidiaries to facilitate expansion into the food and beverage business.

Due to the diversification efforts, the group has also proposed to change its corporate name to Hextar Retail Bhd.

For the nine-month period ended Sept 30, 2023 (9MFY2023), Classic Scenic's net profit plunged 86.5% to RM2.01 million from RM14.84 million for 9MFY2022, mainly due to lower export sales revenue and higher input cost. The higher input cost and weaker export volume of wooden picture frame mouldings resulted in a contraction of the group's gross profit margin to 27% from 41% previously. 

Revenue for the period stood at RM34.61 million, down 43.4% from RM61.16 million a year ago, mainly attributable to lower export volume of wooden picture frame mouldings, amid weak customer demand in the US, the group's main market. 

To navigate the uncertainties and challenges ahead, Classic Scenic said it will actively pursue various cost-control measures, strive to improve production efficiency, and explore new market opportunities.

Read also:
Classic Scenic to buy 51% stake in apparel company to diversify into retail business