Eslite Spectrum Corp’s (誠品生活) earnings for this year might be negatively affected by the implementation of the IFRS 16 accounting system, which has increased the bookstore, shopping mall, restaurant and hotel operator’s depreciation and interest expenses, Capital Investment Management Corp (群益投顧) said in a research note on Thursday.
“Fiscal 2019 revenue might be boosted by two new independent mall complexes. However, depreciation and interest expenses may rise initially after IFRS 16 is implemented ... which may negatively impact Eslite Spectrum’s financial statements,” Capital Investment said.
Established in 2005, Eslite Spectrum is a Taipei Exchange-listed subsidiary of Eslite Group (誠品集團), with a 51.53 percent stake held by the Eslite Bookstore (誠品書局) founder.
The company operates 44 stores in Taiwan, three in Hong Kong and two in China.
Breaking down last year’s revenue by region showed Taiwan accounted for about 80 percent, Hong Kong 12 percent and China, 8 percent, company data showed.
Eslite Spectrum launched a new retail complex on Taipei’s Nanjing W Road in September last year and another retail complex in Shenzhen, China, in December, which have boosted the company’s revenue this year with consolidated revenue increasing 19.84 percent year-on-year to NT$3.43 billion (US$110.45 million) in the first eight months.
However, implementation of IFRS 16 has substantially increased the company’s assets and liabilities, so Eslite Spectrum’s depreciation and interest expenses have soared, cutting into profit margins.
In the first half of the year, net income plunged 42.52 percent to NT$121.78 million, with earnings per share (EPS) of NT$2.57.
The Shenzhen store generated losses during that period.
Capital Investment forecast the firm’s revenue for this year would increase by 16.3 percent annually to NT$5.24 billion, but net income is predicted to plunge by 48.64 percent to NT$178 million, with EPS dropping from NT$7.32 to NT$3.7, due to the implementation of IFRS 16.
Eslite Spectrum shares on Thursday fell 0.83 percent to NT$120 in Taipei trading.
They have declined 6.25 percent so far this year, underperforming the over-the-counter market’s 13.91 percent rise over the period.
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