Period    1Q13/3M13

Actual vs.  Expectations    The full year net profit (NP) of RM59.0m came in far below the consensus and our estimates, making up only 14.1% and 14.0% of the street's estimate and our forecast of RM418.9m and RM422.9 respectively.

 

Dividends   An interim single tier dividend of 10 sen was declared on 12 Nov 2012 and went ex on 27 Nov 2012 for FY13.

We expect another 4.4 sen for FY13 despite the poor set of results based on a payout ratio of 47%, translating into a full year dividend yield of 3.1% 

Key Result Highlights   QoQ, the 1Q13 sales performance was pretty flat, with the sales from South East Asia having cushioned the slight drop in the revenue of the China segment. However, the PBT dropped by 18.0% due to the substantial margin drop in the China operation, resulting in a lower PBT margin of 17.9% as opposed to 22.0% in 4Q12. Meanwhile, the NP decreased further by 24.0% due to a higher effective tax rate of 29.1% (24.8% in 4Q12).  

 YoY, the 1Q13 revenue improved slightly by 5.7% on the back of the better same-store sales growth ("SSSG") from Malaysia and Indonesia (6% and 9%, respectively), which had cushioned the negative SSSG in China and Vietnam (-1.0% and -6.3%, respectively). Despite only a mild increase of 5.7% in revenue, the PBT plunged 28.9% YoY. This was due to the tough operating conditions in China and Vietnam from their weaker economies, a cut in consumer spending as well as the initial losses of new stores. In line with the weak PBT trend, the NP dropped a higher 34.6% on the back of a higher minority interest and effective tax. 

 

Outlook   The earnings prospect has become weaker on the back of the tougher trading conditions, especially in China, which contributed about 82% to the profits in FY12. 

 The company has also cut down its new stores expansion plan in China from 8-10 stores to 5-6 stores, as well as its SSSG from 7-9% for China, 8-10% for Malaysia, 10% for Vietnam and 8-10% for Indonesia to 2% for China, 7-9% for Malaysia, flat for Vietnam and 9-10% for Indonesia. Thus, we have also revised our SSSG assumptions lower accordingly.

Change to Forecasts   With our now slightly higher operating cost assumptions due to the initial losses of its new stores, we have cut our earnings estimates by 12.5% and 7.9% respectively from RM422.9m and RM453.8m for FY13-14E to RM370.2m and RM417.9m respectively. 

Rating  Maintain MARKET PERFORM

Valuation    We have downgraded our TP to RM4.50 (from RM5.13 previously) based on a SOP valuation. Our TP is based on unchanged PER multiples for PRG and PRA of 17.9x and 20.0x, respectively, on their CY13 earnings. In addition, we have also applied a 25% discount to our full SOP valuation of RM5.96 to account for its 'pure' holding company status. 

Risks   A slowdown in the global economy, especially that of China, which would cut the purchasing power of consumers.

Source: Kenanga