FJB recorded a net loss of $1.8m in 3Q09 and was hardly profitable for 9M09. Earnings missed our expectations yet again largely due to the unrealised non-cash foreign exchange loss of $1.7m, and weak operating profits from all segments. Excluding the exceptional items, the group recorded a slight net profit of $0.1m, -97% yoy.

Despite efforts in cost cutting evident in the reduction of staff cost by 9% and a decline in advertising and promotional costs by 72%, it was insufficient to offset weaker revenue and margins. Revenue fell by 19% qoq across all business segments. Despite increased outlets, weaker revenue was recorded in Southeast Asia (-21%), China (-40%) and Indonesia (-9%). Gross margins declined 2pts amid stiff competition.

The group expects the outlook for the region to remain challenging in the global recession. Albeit signs of stability of consumer sentiment, we expect consumer spending to remain weak amid the recession and weak job market. This will thereby affect FJB’s profitability in particularly its new outlets which will face difficulties achieving operational breakeven.

Cash generated from operations has surged to $10.6m from $1.7m in 3Q08. Strengthening cash flows from operations reflect stability in the group’s underlying business. Net gearing remains stable at 0.22x. FJB looks on track to emerge this crisis as a stronger retail player given its stronger balance sheet and enlarged retail network.

We have slashed our FY09 earnings estimates to $1m to reflect the weak 3Q09 and its huge translation losses. However, we have increased our target price to $0.20 pegged to a higher FY09 PBV of 0.85x (previously 0.7x). FJB earnings are likely to remain under pressure until we see a sustained economic recovery. Maintain HOLD.