Period  1Q14

Actual vs. Expectations Zhulian’s 1Q14 NP of RM17.2m (-42% YoY) is broadly in line with our expectations but below consensus, at 20.2% and 12.2% of the full-year estimates, respectively.

 The results are well within our expectations as we had anticipated for its business to only start picking up pace in 2H14.

Dividends  As expected, a first interim single-tier dividend of 3.0 sen was declared.

Key Result Highlights YoY, 1Q14 revenue plummeted 39% to RM66.2m, due to declines in both local and overseas markets. The drop overseas was mainly due to the political uncertainties in Thailand, while local demand was curbed by cautious consumer spending after being hit by a series of subsidies rationalisations. The group NP was lower by 42% to RM17.2m, which was in line with the drop in revenue.

 QoQ, turnover was down 15% to RM66.2m as a result of weaker sales from Thailand. However, its net profit saw a quick 25% growth turnaround, thanks to: (i) higher associate contribution (+90% QoQ), (ii) lower effective tax rate (16% vs. 27%), and (iii) higher EBITDA margin (23% vs. 22%) as a result of lower operating expenses.

Outlook  Looking ahead, we expect Zhulian’s earnings to slowly stabilise after being hit previously. We believe that Thailand’s political risk has been well factored into the share price.

 Its fundamental remains intact with a strong balance sheet with RM149.3m net cash. We reckon that the Thailand issue was an event beyond its control.

 FY14-15E net dividend yield of 3.9%-4.4% should limit the further downside risks of the stock.

Change to Forecasts Maintained our FY14-15 earnings forecasts for now, but we may look to upgrade the stock post the Thailand election or when operating risks abate.

Rating Upgraded to MARKET PERFORM

The stock is down 11% since our downgrade to Underperform. At the current market price, the stock offers a total return of 3.9%. As such, we upgrade our Underperform call to Market Perform.

Valuation  We are maintaining our Target Price at RM2.83 based on an unchanged targeted FY14 PER of 15.4x over its EPS of 18.4 sen.

Risks to Our Call A prolonged political crisis in Thailand

 A slowdown of consumer spending in domestic market.

Source: Kenanga