Period 1Q15

Actual vs. Expectations ASIABRN’s 1Q15 core net profit came in at RM7.3m (+36.9% YoY) on the back of higher revenue of RM79.8m (+12.6% YoY). The market consensus is unavailable as the stock is not widely tracked by analysts. The result is deemed within expectations at 24% of our full-year forecast.

Dividends  No dividend was declared, as expected.

Key Results Highlights  YoY, revenue grew 12.6% to RM78.8m as the Group opened more stores during the quarter. We stripped out RM6.5m of one-off gain on disposal of Cocomax Sdn Bhd and debt written-off of RM6.5m. Thus, core net profit derived stood at RM7.3m, which is 36.9% higher than the RM5.3m registered in 1Q14, as the business model revamp bore fruits.

 QoQ, revenue growth was marginal at 2.8% while similarly core net profit grew 1.9% to RM7.3m. We understand that the improved figures were due to the stronger promotional activities undertaken by the Group during the period. The earnings margins were stable with the net margin hovering above the 9% mark over the last two quarters.

Outlook  Moving forward, the Group is planning to expand its outlet aggressively by tagging along with Aeon, which will see more consignment outlets opened in Aeon malls. The move is viewed positively as it would allow the Group to contain its overhead expenses while freeing up more cash.

 Net gearing stood at 0.7x with total borrowings of RM189.7m and cash level of RM13.7m as at 1Q15. ASIABRN is aiming to pare down its gearing in FY15 which we believe is achievable in view of its cash generative business model.

 QoQ earnings growth was unimpressive as it is traditionally a weak quarter for the Group. The Group expect the sales to be buoyed by the Hari Raya and Christmas festive in the yearend, which will be its 2Q and 3Q. So we are expecting stronger numbers to come in by then.

Change to Forecasts We made no changes to our earnings forecasts.

Rating Maintain MARKET PERFORM

Valuation  We continue to value ASIABRN at RM4.05, based on 10.5x FY15 PER, which is in line with its +1SD 3-year mean PER. We reckon that the valuation is justified as we like the Group for its strong retail branding as well as excellent earnings growth prospect (FY15:26%, FY16:21%). On the flip side, we are also wary of the cautious consumer spending outlook and its relatively higher gearing ratio as compared to the net cash position of the other retailers.

Risks to Our Call The implementation of GST, which could hamper consumer spending

 Higher-than-expected operating costs.

Source: Kenanga