Zhulian

kltrader

Publish date: Thu, 15 Jul 2010, 10:53 PM

Target RM3.44

Zhulian?s 1HFY10 revenue grew 13.6% to RM164.2m while core net profit surged 28.1% to RM42.9m, which was in line with our full-year forecast. We believe the better results were mainly driven by its Thailand operation. 2QFY10 core earnings grew more slowly y-o-y compared with 1QFY10, which we believe was due to a stronger RM against USD and weaker demand in Indonesia and Singapore. We are reducing our FY10/11 earnings forecast by 8%-15% to factor in our in-house forecast of a stronger RM against USD and easing demand from Malaysia, Indonesia and Singapore. Our TP is hence trimmed to RM3.44. Maintain BUY.

In line. Zhulian?s 1HFY10 revenue grew 13.6% to RM164.2m while core net profit surged 28.1% to RM42.9m, representing 38% of our full-year forecasts. We deem this in line given that ~60% of its net profit is usually booked in 2H. While no geographical revenue breakdown was given, we believe the stronger revenue and net profit were mainly from its Thailand operation, as its associate?s profit (solely generated by its 49%-owned Thailand associate), doubled to RM13.4m y-o-y. Compared to the y-o-y core earnings growth of 40.3% in 1QFY10, the slower y-o-y bottom line growth of 7.9% in 2QFY10 could be explained by the strengthening of RM against USD by 6% (the group?s overseas revenue, which collectively contributes ~50% of total revenue, is transacted in USD) and slower demand from Indonesia and Singapore. We also believe that q-o-q revenue and core earnings fell 9.7% and 27.7% respectively due to the same reasons.

EBIT margins flat. Despite the stronger RM against USD, 1HFY10 EBIT margin was flat at 23.6% versus that in 1HFY09 of 24.7% due to effective cost management. While 2QFY10 EBIT margin was down by 4.4% pts y-o-y due to lower sales volume and a stronger RM (RM3.6/1USD in 2QFY09 versus 3.2 in 2QFY10), PBT margin was flat at 26.4% versus 26.8% in 2QFY09, attributed to a doubling of associate profit to RM6.7m.

Trimming earnings. While the results came in in line with our full-year forecast, we are cutting our FY10/11 earnings forecast by 8%-15% to factor in our in-house forecast of a stronger RM against USD and slower demand from Malaysia, Indonesia and Singapore. Our TP is hence reduced to RM3.44 (based on 12x FY10 EPS), which still provides a 26% potential upside. While management believes that the local market is saturating, it is optimistic on its prospects in Indonesia and Thailand. After the 60% acquisition of its Indonesian subsidiary in May 2009, the group is revamping its strategy in Indonesia, which could eventually see its Indonesia operation reaching another level in the next 2-3 years. The group has declared a second interim single tier dividend of 3 sen/share, making up a total dividend of 6 sen/share YTD.

CONSUMER (RETAIL)

Zhulian is involved in multi-level marketing (MLM) and has diversified interests in the manufacture and trading of costume and fine jewelry, consumer products and printing.

Stock Statistics

Bloomberg Ticker ZHCB MK

Share Capital (m) 345.0

Market Cap (RMm) 941.9

52 week H?L Price (RM) 2.95 1.38

3mth Avg Vol (?000) 466.8

YTD Returns 65.2

Beta (x) 0.69

Major Shareholders (%)

Zhulian Holdings SB 35.01

The Best Source Holdings 17.34

Teoh Beng Seng 10.47

By OSK188

Analyst: Eing Kar Mei

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