Period     4Q13 / FY13

Actual vs.  Expectations    The 4Q13 net profit (NP) of RM10.3 brought the FY13 NP to RM17.2m. The strong set of results was above expectations and accounted for 110.3% of our full year estimates of RM15.6m. This was due to lower than anticipated operating expenses for the quarter.

Dividends    As per expectations, no dividend was declared for the quarter. 

Key Result Highlights    YoY,  the 4Q13 revenue grew by 156.6% due to its recent acquisition of Asia Brands Corporation Berhad’s  subsidiaries (owning the core brands of Anakku and Audrey), which were consolidated into the group’s results in December 2012. For the same reason, the NP has also risen by 224.8% YoY from RM3.2m in 4Q12. 

QoQ, the 4Q13 revenue increased by 69.6% as the group benefited from a full 3-month contribution from the new business segments in the quarter as compared to just one month in 3Q13. Meanwhile, the NP jumped by 473.3% as higher expenses were incurred in the previous quarter in anticipation of the Chinese New Year festive promotion. 

YTD, the FY13 revenue increased by 43.2% YoY due to the abovementioned reasons. However, the NP grew by just 17.1%, which was attributed to:  1) the higher finance costs (RM3.9m compared to RM0.4m in FY12) associated with the borrowings used to fund its recent acquisition above and 2) a higher effective tax rate of 26.4% as compared to 19.9% due to non-deductible expenses and a claw back of accelerated capital allowances.  

Outlook    Going forward, we expect the combined synergies of the enlarged group to be even more pronounced as the new business segments are expected to complement and enhance the product variety of the group, increase customer and supplier base as well as eliminate duplicate resources.

In addition, the group's on-going plans to pare down its gearing seem to be on-track and going to FY14, we expect the group to benefit from gains on the disposal of its non-core and non-revenue generating assets in addition to its recently proposed private placement (more details overleaf). 

The planned implementation of its "Smart Vendor Partnership Program" (SVPP) will also complement its adoption of an asset-light business model.

Change to Forecasts    While the FY13 NP came in ahead of expectations, we are leaving our FY14-15E earnings estimates unchanged at this juncture (RM33.8m-RM41.0m) pending its next first quarter results, which is seasonally the weakest. 

Rating    Maintain OUTPERFORM. 

Valuation     We are maintaining our TP at RM4.00 based on an unchanged fwd. PER valuation of 8.5x over the FY14 EPS of 47.0 sen. 

A slowdown in the global economy could cut the purchasing power of consumers.

Risks    Delay in implementing the SVPP. 

Source: Kenanga