Period

4Q15/FY15

Actual vs. Expectations

FY15 net profit of RM30.1m (-25.3%) is within expectations by accounting for 101% and 104% of our in-house and consensus forecasts, respectively.

Dividends

The group has proposed a final single-tier dividend of 11.0 sen/share, lifting FY15 DPS to 15.0 sen/share (FY14:14 sen/share), translating into a payout ratio of 97.4%, which is within our expectation.

Key Results Highlights

YoY, FY15 revenue was 5.3% lower at RM239.9m, dragged down by the lacklustre MLM division which recorded revenue decline of 6.2% to RM135.6m mainly due to the transition period where the Group switched focus to smallticket items. PBT was lower at RM43m (-19%) due to the weaker performance in the wholesale division, attributable to the strengthening of USD against MYR, which resulted in lower profit margin. Net profit fell at a greater extent, by 25.3%, due to a higher effective tax rate (28.5% vs 23.1%).

QoQ, 4Q15 revenue rose 13.7% to RM70.4m, driven by growth across all divisions with retail registering the biggest jump of 56.8% thanks to the timing of Chinese New Year and pre-GST stock up activities. However, wholesales division was the biggest contributor in terms of profit growth as division’s operating profit was higher at RM3.2m from RM0.1m due to the pre-GST sales campaign and the preloading activities by the majority of its customers. As a result, net profit increased by 28.5% to RM9.4m.

Outlook

We are not overly excited on the earnings jump as we think that pre-GST frontloading has a major part in it. Thus, we expect to see weaker quarterly ahead as sales normalizes.

Outlook remains challenging with the biggest concern on the wholesales division due to the strong USD against MYR. With the USD still staying strong, the Group might face difficulty in sustaining the profitability in this division.

The strategy of realigning the sales focuses towards smallticket items has gained traction with small-ticket items now contributing >60% over total sales but the profit margins ended up being narrowed. Moving forward, we foresee limited growth in MLM division in view of the weak local consumer sentiment.

The near-100% dividend pay-out ratio might excite investors as FY15 DPS represents 6.7% yield, but we still maintain our negative stance on the company as we are cautious on the negative impact from the strengthening USD and the subdued consumer sentiment.

Change to Forecasts

We made housekeeping changes to FY16E forecast after updating FY15 numbers, resulting in 2.8% reduction in net profit. We also take this opportunity to introduce FY17E earnings, which implied net profit growth of 7.7%.

Rating

Maintain UNDERPERFORM

Valuation

We maintain our Target Price of RM2.00, based on higher FY16E PER of 12.9x (from 12.6x) after updating our 5-year moving average PER mean. The valuation remained unchanged at below 5-year mean.

Risks

Stronger-than-expected MYR against USD

Sector risk: Better-than-expected consumer sentiment.

Source: Kenanga Research - 25 Jun 2015