Zhulian Corp 1HFY2010 topline is in line with our expectations, accounting for 48% of our FY2010 forecast. Zhulian is expected to perform better in 2H owing to the various festive seasons that will spur consumer spending. The company announced its second interim dividend of three sen per share, making a total of six sen per share. We project Zhulian's FY2010 dividend payout to be at 15 sen per share.

Although Zhulian's topline rose by 5.9% year-on-year (y-o-y) to RM77.9 million in 2QFY2010, their profit from operations fell by 14.9% y-o-y to RM13.9 million. This is due to a drop in operating margins by 19.7% y-o-y to 17.8%. The drop in profit from operations is expected as Zhulian conducts its yearly marketing activities in 2Q. Zhulian's quarter-on-quarter revenue fell by 9.7% to RM77.9 million due to weaker overseas demand. The political unrest in Thailand is believed to be the cause, given that the Thai market garners about 40% of Zhulian's sales.

We remain vigilant on Zhulian's ability to gather members due to stiff competition in the MLM industry. Festive seasons in 2H2010, coupled with signs of political stability in Thailand and firm gold prices, should lend support to boost demand for cheaper alternative like Zhulian's costume jewellery. ? Inter-Pacific Research, July 15

This article appeared in The Edge Financial Daily, July 15, 2010.