Period  2Q15/1H15

Actual vs. Expectations Reported 1H15 net profit of RM11.6m (+20.4%) was below our expectation by accounting for 38% of our full-year forecast. No consensus was available as the stock is not widely tracked by analysts. The negative variance is due to the higher-than-expected operating costs on the back of higher-than-expected promotional expenses.

Dividends  No dividend was declared, as expected.

Key Results Highlights YTD, 1H15 revenue recorded a growth of 7.5% to RM172.1m, driven by aggressive promotional activities. Core net profit of RM11.6m was 20.4% higher vis-à-vis RM9.6m (after excluding an one-off asset diaposal gain of RM6.6m), thanks to the higher gross margin of 50.9%, up 0.9ppt as a reflection of higher efficiency in the new business model of brand management.

 YoY, 2Q14 revenue inched up by 2.5% thanks to the contribution from new outlet opening. However, higher expenses in relation to commission, pricing discounts and fair expenses in order to boost sales and fend off competition inflated the operating expenses by 39.6%, which in turn brought operating profit down by 19.1% to RM8.5m.

 QoQ, Hari Raya festival boosted the revenue growth by 15.7%. However, operating margin dipped by 5.9ppt to 9.2% on the back of higher selling and distribution costs (+15.4%), as well as higher finance costs of RM2.6m (+28.1%), which together caused net profit to decline by 40% to RM4.4m.

Outlook  We expect the retail sales business environment to remain challenging where the Group will have to embark on aggressive marketing and promotional activities in order to boost the sales due to the weak consumer sentiment. Meanwhile, ASIABRN is also facing tougher competition in the market following the gradual establishment of well-known international brands such as Uniqlo and H&M that provide consumers further options of trendy and value-for-money apparels.

Change to Forecasts We tweaked our earnings forecasts by factoring higher operating costs as we opt to be more conservative on the cost assumptions in view of the persistently soft consumer sentiment. As a result, FY15E and FY16E earnings were revised down by 5.9% and 3.5%, respectively.

Rating Maintain MARKET PERFORM

Valuation  Correspondingly with our earnings revision, our Target Price was adjusted to RM3.44 (from RM3.66). Our valuation is unchanged at 9.5x PER FY15E, implying +0.5 SD over its 3-year mean.

Risks to Our Call

 Weaker-than-expected consumer sentiments.

 Worse-than-expected competition level in the retail market.

Source: Kenanga