Period

1Q16

Actual vs. Expectations

1Q16 recorded a net loss of RM9.2m against our full-year forecast of RM11m, way below our expectation. The variance from our forecast is due to slower-than-expected sales as revenue plunged 28% to RM57.7m.

Dividends

A single-tier tax exempt final DPS of 0.5 sen for FY15 has been declared, which is way below our expectation. We cut our FY16 and FY17 DPS assumption from 5 sen to 0.5 sen each.

Key Results Highlights

1Q16 vs. 1Q15, YoY

1Q16 revenue plunged 28% YoY to RM57.7m due to the implementation of Goods and Services Tax leading to softer-than-expected demand albeit aggressive sales activities.

1Q16 registered a pre-tax loss of RM12.8m compared to a pre-tax profit of RM10.1m in 1Q15 due to due to GP margin erosion resulting from aggressive sales promotional activities, excessive price discounting and cautious consumption behaviour. This brings 1Q16 net loss to RM9.1m. 1Q16 vs. 4Q15, QoQ

1Q16 revenue fell 30% due to post festivities coupled with measures to protect market share in a highly competitive market in spite of the implementation of the Goods and Services Tax.

1Q16 pre-tax loss widened to RM12.8m compared to the pre-tax loss of RM6.7m in 4Q15.

Outlook

GST implementation is expected to dampen consumer sentiment and haul down discretionary spending for the next 2-3 quarters.

In addition, competitive headwinds in the market are likely to exert pressure on profit margins as the company again embarks on aggressive marketing and promotional activities, in an attempt to boost sales.

Change to Forecasts

We are cutting our FY16 and FY17 net profit forecast by 89-37% taking into account of lower sales and higher price discounting.

Rating

Maintain UNDERPERFORM

Valuation

In tandem with the downward revision in earnings, we lower our TP to RM1.27 (from RM1.97) based on 12x FY17 revised EPS. The target PER of 12x is inline with its peers. Besides, we have also rolled over our valuation to FY17 (from FY16) as we believe the plunge in FY16 profitability could have reflected in the sharp decline of share price.

Risks to Our Call

Faster-than-expected recovery in consumer sentiment.

Lower-than-expected opex.

Source: Kenanga Research - 19 Aug 2015