Period  2Q14/1H14

Actual vs. Expectations  Asia Brands Berhad (ASIABRN) reported 1H14 net profits (NP) of RM16.3m which was within expectation; accounted for 44% of our FY14E earnings estimate.

 Annualised, the seemingly low earnings performance is not a major concern as we expect ASIABRN to benefit from the increased sales in 2H14 due to Christmas, New Year and Chinese New Year festivities.

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

Key Result Highlights  YoY, ASIABRN's 2Q14 revenue surged to RM90.1m (+140.3% YoY) as the Group benefited from the acquisition of the Asia Brands Corporation Berhad subsidiaries (core brands such as Anakku and Audrey) which were consolidated into the Group in December 2012. Gross margins had also improved by 5.3ppt to 49.9%, although the impact was negated by higher operating expenses and finance costs, which led to NP increasing by just 4.9% to RM5.0m.

 QoQ, 2Q14 revenue increased by 28.7% due to the Hari Raya festive season. Nevertheless, the NP declined by 55.9%, as a result of gains on disposal of property recorded in the preceding quarter amounting to RM6.0m. Excluding the one-off gains, NP decline by a lesser extent of 5.6%, which is attributed to higher finance cost and effective tax rate.YTD, its 1H14 revenue rose by 172.6% YoY (RM160.1m) due to the aforementioned injection of the baby apparels and lingerie business segments. Coupled with the gains on disposal, NP also increased by 227.5% to RM16.3m.

Outlook  Merger related efficiencies aside, we are positive on ASIABRN's future prospects of enhancing its product variety and brand labels to become a "Brands Conglomerate". The Group currently has 20 house brands and operates ten more under license. Recent licensed partnerships include the Hello Kitty and Manchester United brands in Malaysia.

 In addition, the group also has plans to expand its retail network (recently opened Animation World in Midvalley, Baby Palace in the Mines and Sunway Pyramid and UBAY in Times Square KL) and customer base further, and is also exploring the opportunities to replicate and scale its business model beyond the Malaysian border.

Change to Forecasts  No changes to our FY14E-FY15E earnings forecast of RM36.7m-RM42.8m

Rating Maintain OUTPERFORM.

Valuation  We are rolling over our valuation basis to FY15 on an unchanged targeted PER of 8.5x. With it, our TP is also revised upwards to RM4.60 (from RM3.95 previously).

Risks to Our Call  A slowdown in the global economy which may impact consumer spending, and in turn will impact the Group's sales and profitability. 

Source: Kenanga