Period  2Q14/1H14

Actual vs. Expectations Within expectation. 1H14 Net Profit (NP) of RM51.6m reached 45.9% and 46.5% of consensus and our in-house FY14 forecast, in line with historical trends where 1H numbers accounted for 43%-47% of full-year NP between FY11-FY13. Thus, we expect stronger 2H14 figures to bolster the full year numbers.

Dividends  A second interim dividend of 10 sen/share was declared as expected, lifting 1H15 dividend to 20sen/share, thus making up 36% of our dividend forecast of 62 sen/share, which translates into a dividend yield of 5.3%

Key Result Highlights YoY, 1H14 top line revenue showed marginal growth of 1.9% to RM406.8 m from RM399.2m a year ago on the back of sales and marketing programmes, while more significant growth (10.3%) was seen in the bottom line after the net margin improved by 1ppt to 12.7% as lower operating expenses were being recognized in the period as opposed to 1H13.

 QoQ, 2Q14 revenue of RM193.5m recorded a decline of 9.3% as the strong revenue of RM213.3m in the previous quarter was boosted by sales and marketing programmes. However, NP managed to inch up by 2.5% to RM26.1m from RM25.5m in 1Q14 despite the lower sales, again thanks to lower operating expenses, which expanded the net margin by 1.5 ppt to 13.5%.

Outlook  Moving forward, we are wary of the cautious consumer spending, which could dent its nearterm outlook. However, the dividend yield of >5% is expected to support the share price on the back of its strong balance sheet and stable cashflow while the projected earnings growth of 8.7% in FY15E is deemed decent.

Change to Forecasts We make no changes to our FY14-15E earnings forecasts as we expect stronger numbers in 2H14 due to seasonal factor.

Rating Maintain MARKET PERFORM

Valuation  We maintain our TP of RM12.50, pegged with 17x FY2015 PER. The valuation implies 0.5x SD over its 3-year mean average, which is in line with the sector average.

Risks to our Call  Stronger USD exchange rate, which increases the cost of inventory

 The implementation of GST that could potentially hamper consumer spending.

Source: Kenanga