Tomei Consolidated Berhad: Riding the Gold Wave with Improving ROCE and Resilient Margins

Investment Thesis
Tomei Consolidated Berhad (KLSE:TOMEI) is positioned to capitalize on a confluence of macro and micro tailwinds: surging gold prices, accommodative global monetary policies, and its own improving financial metrics. With a robust ROCE of 17% (vs. 12% industry average), strong EPS growth, and margin stability, the company is well-equipped to navigate near-term volatility while benefiting from long-term structural trends. Here's why investors should pay attention.

Financial Performance: Strong Foundations for Growth

Tomei's Q1 2025 results underscore its operational resilience:
- Revenue rose 7.8% YoY to RM348 million, driven by its jewelry division.
- Net profit surged 33% YoY to RM27.8 million, with margins expanding to 8.0% from 6.5% in Q1 2024.
- EPS increased to RM0.20, a 33% jump from RM0.15.

The company's ROCE of 17% (trailing twelve months to March 2024) reflects superior capital efficiency, with capital employed growing 136% over five years while maintaining strong returns. This signals effective reinvestment into profitable ventures, such as expanding its jewelry retail network.

Why Gold Demand Matters for Tomei

Gold's meteoric rise to $3,500/oz in April .2025 (and sustained volatility) is a dual-edged sword for Tomei:
- Demand Catalysts:
- Central Bank Purchases: China, Kazakhstan, and Uzbekistan added 240 mt of gold in Q1 2025, diversifying reserves amid U.S. debt concerns.
- Safe-Haven Demand: Geopolitical tensions (e.g., Middle East conflicts) and trade wars have fueled gold's role as a hedge.
- Monetary Policy: The U.S. Fed's anticipated three rate cuts in 2025 reduce the opportunity cost of holding gold, while a weaker dollar further supports prices.

• Tomei's Exposure:
  As a jewelry retailer, Tomei benefits from rising gold prices indirectly—higher demand for gold products typically boosts sales volumes. However, its margin stability (8.0% net profit margin despite cost-of-sales at 77% of revenue) suggests effective cost management or hedging strategies.

Technical Setup and Near-Term Targets

• Current Position: Tomei's shares rose 1.2% week-on-week as of May 22, 2025, but face resistance near RM4.50, a key psychological level.
• Support Levels: A breakdown below RM3.80 (May 2025 lows) could signal a correction, but the 50-day moving average (~RM4.00) offers near-term support.
• Bullish Catalysts:
• A Federal Reserve rate cut on June 18 could lift gold prices beyond $3,400/oz, boosting Tomei's sales.
• Analyst Targets: J.P. Morgan's $3,675/oz gold forecast by Q4 2025 aligns with Tomei's potential to hit RM5.00 by year-end, assuming revenue growth tracks gold demand.

Risks to Consider

1. Gold Volatility: A sharp drop in gold prices (e.g., below $3,125/oz) could reduce demand for jewelry, hurting margins.
2. Macro Uncertainties: Malaysia's economy faces headwinds from global trade tensions and a potential U.S. tariff hike on autos in July, which could dampen consumer spending.
3. Company-Specific Risks: Three undisclosed warning signs (including one “unpleasant” issue) warrant caution. Investors should monitor Q2 results for clarity.

Investment Recommendation

Buy with a Stop-Loss:
- Entry Point: Accumulate near RM4.00, with a stop-loss below RM3.80.
- Target: RM5.00 by end-2025, assuming gold prices hold above $3,200/oz and Tomei's ROCE continues improving.

Hold for the Long Term: Tomei's 345% total return over five years and its strategic focus on high-margin jewelry segments suggest it's a solid pick for investors willing to ride out short-term volatility.

Final Note: Tomei Consolidated Berhad is a compelling play on gold's structural bullish trend and its own operational excellence. While risks exist, the company's improving ROCE and macro tailwinds make it a top pick in the specialty retail sector. Stay alert to central bank policies and gold price movements.