Period

3Q15/9M15

Actual vs. Expectations

9M15 net profit of RM490.9m (+8.6%) accounted for 81.2% of our in-house full-year forecast and 82.9% that of the streets’ estimate. We deemed the results to be broadly in line as 4Qs are seasonally the weaker quarter.

Dividends

Surprisingly, a second interim DPS of 65.0 sen was declared, bringing YTD payout to RM1.30. Normally, the Group only pays dividends in Q2 and Q4. However, we keep our DPS forecast unchanged pending the analysts’ briefing tomorrow.

Key Results Highlights

YoY, 9M15 revenue slid 1.7% to RM3.6b which can be attributed to the weak consumer sentiment throughout the year as well as lower spending power post-GST implementation. However, the decline in sales has narrowed as compared to the 4.8% drop recorded as of 1H15. EBIT grew 5.3% to RM632.0m thanks to favourable commodities prices and improvement in operating efficiency, which expanded the EBIT margin by 1.2ppt to 17.4%. Net profit registered growth of 8.6% to RM490.9m, aided by lower effective tax rate of 19.4% (vs 9M14:22.5%).

QoQ, 3Q15 revenue was higher by 6.6% to RM1.2b, contributed by both domestic and export sales with the former driven by successful marketing campaigns while the latter recovering from the low base recorded in 2Q15. The higher turnover, favourable raw material prices movement as well as swing in marketing expenses managed to swell EBIT by 28.6% to RM214.4m. Meanwhile, net profit growth was even higher at RM179.2m thanks to the lower effective tax rate of 12.7% (vs 2Q15:22.3%).

Outlook

The resilient results achieved despite the weak consumer sentiment was encouraging, particularly with the growth not only coming from margin expansion from cheaper raw material costs and operating efficiency but the recovery in domestic sales which was driven by its investment in marketing campaigns. Meanwhile the export sales also improved which we think is attributable to the low-base effect as well as the benefit of weaker MYR that boosted the comparative cost advantage against the other regional production affiliates.

Moving forward, we expect the sales growth momentum to continue which might see sales growth returning to the positive following the adaptation of consumer to the new costing environment. However, we think that more expenditure could be back-loaded in 4Q15; thus, we do not expect the numbers to be better than 3Q15.

Change to Forecasts

No changes to our earnings forecasts.

Rating

Maintain MARKET PERFORM

Valuation

We maintain our Target Price to RM76.20, based on unchanged PER of 27x FY16E EPS, which is in line with +0.5SD over 5-year mean.

Risks

Higher-than-expected operating costs.

Weaker-than-expected consumer sentiments

Source: Kenanga Research - 23 Oct 2015