Period

3Q15/9M15

Actual vs. Expectations

9M15 net profit of RM40.5m (+13.1% YoY) is within expectation, accounting for 77.1% of our full-year forecast. Consensus comparison is not available as the stock is not widely tracked.

Dividends

The Group has proposed a dividend of 1.5 sen/share, bringing YTD DPS to 4.5 sen (9M14: 8.0 sen), in line with our forecast.

Key Results Highlights

YoY, 9M15 revenue declined 14.7% to RM161.2m due to sluggish local market demand on the back of weak consumer sentiment. PBT grew 17.5% to RM52.8m which the Group attributed to the strengthening of USD. Net profit growth was slower at 13.1% to RM40.5m due to a higher effective tax rate of 23.3% (9M14: 20.3%).

QoQ, 3Q15 revenue was lower by 8.3% at RM50.7m due to the lower domestic sales. However, PBT surged 42.5% to RM20.9m due to the reason mentioned above. Net profit jumped by a greater quantum of 51.9% to RM16.9m thanks to lower effective tax rate of 19.4% (2Q15:24.3%)

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. The Group is also aiming to attract new distributors and retaining existing distributors by enhancing the effectiveness of R&D efforts in developing new products, introducing more promotional campaigns and improving the quality of its customer service.

We maintain our cautious stance in view of the tough operating environment in Malaysia as consumer sentiment has succumbed to a 6-year’s low in 2Q15. With GST implemented since 2Q15, we do not expect consumer sentiment to recover quickly, particularly in the retail/MLM sector. Meanwhile, the Thailand market is still weak judging from the weak contribution from associates.

Change to Forecasts

No changes to our earnings forecast.

Rating

Maintain UNDERPERFORM

Valuation

We maintain our Target Price of RM1.41, based on unchanged 11.4x FY16 PER, which implied -1 SD over 3-year’s average Fwd PER.

Risks to Our Call

Better-than-expected consumer sentiment.

Source: Kenanga Research - 16 Oct 2015