Period

2Q15/1H15

Net profit of RM23.7m (-7% YoY) is deemed within expectation, accounting for 45.1% of our full-year forecast. Consensus comparison is not available as the stock is not widely tracked.

Dividends

The Group has proposed dividend of 1.5sen/share, bringing YTD DPS to 3.0sen, which is below our expectation of 10.0sen in FY15 due to the lower-thanexpected payout ratio.

Key Results Highlights

YTD, 1H15 revenue fell 16.2% to RM110.5m due to the lower sales in the local market on the back of persistent weak consumer sentiment. Operating profit grew 14.2% despite the lower revenue as 1H14 was dragged down by higher expenses incurred in marketing plans and higher start-up costs in Myanmar operations. PBT declined marginally by 0.6% to RM31.9m due to the lower contribution from Thai associates (-19.1%), but net profit fell by a greater quantum of 7% due to the higher effective tax rate (25.8% vs 20.7%). 

QoQ, 2Q15 revenue was flattish at RM55.3m while operating profit fell marginally by 1.3% to RM10.1m. However, contribution from associates slumped by 34.6% to RM4.6m due to the weak market condition in Thailand. That brought net profit down by 11.5% to RM11.1m.

Outlook

Moving forward, the Group is aiming to attract more distributors, particularly young entrepreneurs who are looking for low entry-cost ventures by adopting ‘small ticket items’ strategy. 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.

All in, we maintain our cautious stance on the company in view of the tough operating environment in Malaysia as consumer sentiment succumbed to 6-year low in 1Q15. With GST being implemented in 2Q15, we do not expect the sentiment to recover quickly. Meanwhile, the Thailand market is still weak judging from the lacklustre contributions from associates. 

Change to Forecasts

No changes to our earnings forecast, but we revised down our DPS forecast from 10.0sen for both FY15E and FY16E to 7.0sen and 7.5sen, respectively by assuming more conservative pay-out ratio of c.60% to be in line with the YTD pay-out trend.

Rating 

Maintain UNDERPERFORM

Valuation

We roll over our valuation base year from FY15E to FY16E. We also switch our valuation methodology from blended PER/PBV valuation to PER valuation in view of its stabilising earnings trend. Our TP is unchanged at RM2.00, based on 16.1x PER FY16E, which is close to -0.5 SD over 3-year mean.

Risks

Better-than-expected consumer sentiments