Period

1Q15/3M15

Actual vs. Expectations

1Q15 reported net profit of RM12.6m (-26.9%) was within our expectation by accounting for 24% of our forecast.

Dividends

A 1.5 senDPS was declaredand we are expecting a total of 10.0 senfor FY15.

Key Results Highlights

YoY, 1Q15 revenue dipped 16.5% to RM55.2m which the Group attributed to the weaker domestic demand on the back of soft consumer sentiment in the local market. However, net profit suffered a heavier decline of 26.9% to RM12.6m, mainly due to the higher effective tax rate of 27.1% vis-à-vis 15.8%.

QoQ, 1Q15revenue was flattish as compared to 4Q14. Net profit was able to surge by 11.1% despite the higher effective tax rate thanks to higher profit contribution from associates (+80.9%) as compared to previous quarter and also due to seasonal effects as 4Qs are normally the weakest quarters.

Outlook

Moving forward, the Group is adopting ‘small ticket items’ strategy in order to attract more distributors, particularly young entrepreneurs who are looking for low entry-costs ventures. Although the strategy may be able to attract higher core distributor force (CDF) in the long run, we foresee earnings to be dragged down by the transition period in short-term, based on the experience of another local MLM player.

Overall, we maintain our negative stance on the company. TheThailand market has yet to show any strong recovery sign while the local market is bracing for more challenges on the back of persistent soft consumer sentiment, which is expected to be further dented by the implementation of GST.

Change to Forecasts

No changes to our earnings forecasts

Rating

Maintain UNDERPERFORM

Valuation

We maintain our Target Price of RM2.00 based on blended Price-Book (PB) ratio of 2.2x (-0.5SD 3 year mean) and Price-Earnings (PE) ratio of 13.7x (-0.5SD 3 year-mean).

Risks to Our Call

Better-than-expected recovery in Thai market.

Better-than-expected consumer sentiment in local market.

Source: Kenanga Research - 16 Apr 2015