Period  4Q13/FY13

Actual vs. Expectations  FY13 net profit (NP) of RM121.0m (+3% YoY) came in below expectations, accounting for 88% of our and consensus full-year forecasts of RM137.0m. We were negatively surprised by the disappointing 4Q13 results, as the variance from our forecast was due to lower-than expected sales in overseas market, i.e. mainly Thailand.

Dividends  Single-tier dividend of 3 sen per share and a special single-tier dividend of 4 sen per share have been declared, bringing the full-year total dividend to 16.0 sen per share vs. our projection of 17.9 sen. This implies a net dividend yield of 3.5% and a dividend payout ratio of 61% of its FY13 earnings. The variance in dividend projection was in tandem with the missed net profit forecast.

Key Result Highlights QoQ, 4Q13 revenue decreased by 37%. The key culprit is the softer Thailand market brought about by the political uncertainties in Thailand and also the fall in Thai Baht against USD which negatively affected its top and bottom lines. The longer-than-expected crisis can be seen in the decline in associates’ contribution (-68% QoQ), which is one of their key earning drivers. Meanwhile, the demand in the Malaysia market stayed on course, but was flat QoQ. Hence, PBT plunged by 61% to RM18.8m.

 YoY, 4Q13 revenue and PBT fell by 33% and 50%, respectively, due to same reason mentioned above. YoY, FY13 revenue fell by 7% to RM417.1m. The decrease in revenue was mainly due to lower local market demand, especially during 1H13 attributable to the tightening of household credit and the sluggish consumer spending. However, due to a higher associate contribution from Thailand (+8% YoY), the PBT increase marginally by 3% YoY.

Outlook  While the near-term prospects appear uncertain for Zhulian, we believe that the political crisis in Thailand will be short-lived and sales activity should pick up post the Thailand election.

 Minimal impact should be seen from the recent fuel and electricity tariff hike.

 In the meantime, the company is expanding into the Myanmar market in 1H14 and our estimates has yet to impute for the new contribution as we are awaiting further clarity.

Change to Forecasts We are downgrading our FY14-15 net profit estimates by 14% each as we take into account the lower associate contribution as well as lower CDF growth in Thailand.

Rating Downgraded to MARKET PERFORM

Valuation  We are cutting our TP from RM5.40 to RM4.70 based on an unchanged fwd. PER valuation of 15.8x but lowered FY14E EPS of 29.9 sen. We have already reflected the main earnings risk from Thailand into our estimates.

Thus, we left our targeted PER unchanged, as we believe that the Thailand political crisis would be short-lived and the ascribed PER is still at a 16% discount to Amway’s 18.7x.

Risks to Our Call A prolonged political crisis in Thailand

 A slowdown of consumer spending in domestic market.

Source: Kenanga