Period  3Q14/9M14

Actual vs. Expectations ASIABRN recorded 3Q14 net profit of RM6.8m, bringing its 9M14 net profit to RM23.1m (+243% YoY). Despite the quarterly improvement (+36% QoQ, +277% YoY, respectively), the results still fell short of our more optimistic expectations, at only 63% of our full-year estimates. The main culprit for this earnings miss was largely due to weaker-than-expected sales during the Christmas holiday festivities.

Dividends  No dividend was declared for the quarter, as expected.

Key Result Highlights YoY, revenue rose by 73% from RM48.3m in 3Q13 to RM83.7m in 3Q14 as ASIABRN benefited from the acquisition of the Asia Brands Corporation Berhad’s subsidiaries (baby brands such as Anakku and lingerie brands Audrey) which were consolidated into the Group in December 2012. A more favourable product mix also led to better profitability for the Group, with gross margins expanding by 7.9ppt YoY to 54.8% and 3Q14 net profit surged by 277%.

 QoQ, revenue declined by 7.1% due to the seasonality effect (Hari Raya festive season fell in the preceding quarter). In contrast, net profit increased by 36% as the markedly higher gross margins were more than offset the higher operating expenses and effective tax rate. Consequently, net margin expanded from 5.6% in 2Q14 to 8.1% in 3Q14.

 YTD, 9M14 revenue increased 128% while net profit rose by 243%. Apart from the above-mentioned injection of the baby and lingerie business segments and improvement to gross margins, the bigger proportionate improvement to its bottom-line was also due to gains on disposal of property amounting to RM6.0m in 1Q14. Excluding the one-off gain, core net profit was RM17.1m (+154% YoY).

Outlook  We are positive on ASIABRN's longer term prospects of enhancing its product variety, brand labels and retail network to become a "Brands Conglomerate". The Group currently has 20 house brands and operates ten more under license and in addition it is also exploring opportunities to replicate and scale its business model beyond the Malaysian border.

Change to Forecasts We have trimmed our FY14-FY15E revenue forecast by 7%-11%.

 At the same time, we have assumed higher operating expenses for FY14. Consequently, our FY14 and FY15 net profit estimates have been lowered by 12% and 11%, respectively.

Rating Maintain OUTPERFORM.

Valuation  Our previous TP of RM4.60 has been reduced to RM4.10 following the earnings revision. This implies an unchanged PER valuation of 8.5x over FY15E EPS of 48 sen.

Risks to Our Call

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

Source: Kenanga