Period  4Q14 / FY14

Actual vs. Expectations ASIABRN’s FY14 net profit (NP) of RM30.2m (+74.0% YoY) came in slightly below our expectations, accounting for 93.2% of our estimate.

 The main culprit for the miss was largely due to the higher-than-expected operating expenses.

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

Key Result Highlights YoY, 4Q14 revenue dropped by 6.4% due to a general slowdown in consumer spending. A 4.6ppt YoY gross margin improvement was not enough to offset the higher operating expenses incurred, causing the group’s core NP to plunge by 31.2%.

 QoQ, revenue declined by 8.4% as the early arrival of Chinese New Year 2014 diverted most of the consumer spending towards 3Q14. In contrast, NP grew by 4.6%, on the back of a lower effective tax rate (14.0% in 4Q14 vs. 43.6% in 3Q14). Higher operating expenses continued to be a worry for the quarter, as EBIT margin compressed by 2.8ppt QoQ to 14.1%.

 YTD, FY14 revenue surged to RM320.5m (+69.7% YoY) as ASIABRN benefited from the acquisition of the Asia Brands Corporation Berhad subsidiaries (baby brands such as Anakku and lingerie brands Audrey) which were consolidated into the Group in December 2012. Coupled with the improvement of gross margin (+5.1ppt) and gains on disposal of property amounting to RM6.0m in 1Q14, ASIABRN’s bottom line has improved by 74.0% YoY. Excluding the one-off gains, core net profit was RM24.2m (+40.8% YoY).

Outlook  While we are positive on ASIABRN’s longer term prospects of enhancing its product variety, brand labels and retail network to become a "Brands Conglomerate", near-term outlook could be hampered by cautious consumer spending and higher operating expenses.

Change to Forecasts We maintain our FY15E earnings forecast of RM38.2m for now, pending a meeting with management to get further clarification on the company’s cost control and whether the margin would continually be under pressure.

Rating Maintain MARKET PERFORM

Valuation  Maintain our TP at RM4.10 for now. Our valuation is based on an unchanged PER valuation of 8.5x over FY15E EPS of 48.3 sen.

Risks to Our Call  The implementation of the GST and subsidy rationalization program by the government could potentially hamper consumer spending.

 Higher-than-expected operating expenses incurred.

Source: Kenanga