Period

2Q16/1H16

Actual vs. Expectations

Below than expected. While 2Q16 recorded a lower net loss (NL) of RM0.7m against net loss of RM9.1m in 1Q16. As a result, 6M15 results have also fallen below our in-house full-year net profit (NP) estimate of RM1.2m.

Dividends

No interim dividend was declared in 2Q16, as expected. Nonetheless, we foresee a 0.5 sen dividend payout during this financial year.

Key Results Highlights

QoQ

2Q16 revenue improved from 1Q16 NP of RM57.8m to RM68.3m (+18.2%). Like most retailers, we reckon higher turnover is a result of the Hari Raya festive season.

As a result, net loss narrowed to RM0.7m from RM9.1m thanks to the higher sales but the revenue was still too low to cover selling and distribution expenses. YoY

1H16 revenue plunged -26.8% to RM126.0m which we believe is attributed to the persistent weak consumer sentiment arising from the implementation of Goods and Services Tax since April 2015 (i.e. beginning of FY16) and is further downplayed by the weak Ringgit.

Lower gross profit (GP) margin appears to support this as 1H16 GP of RM53.4m (-38,3% YoY) yielded 42.4% GP margin from 1H15 GP margin of 50.3%.

The Group recorded 1H16 NL of RM9.9m from 2H15 NP of RM11.6m due to the slump in sales and the aggressive promotional activities in order to stimulate the consumer demand from company products.

Outlook

Consumer sentiment could have discouraged by the GST implemented in April this year. Besides, we also do not rule out that discretionary spending is further dampened by the imported inflation (in-line with the prevailing weakness in the Ringgit) as well as lower disposal income arising from higher living cost.

In view of the worse-than-expected results, absence of catalysts and the lack of investment interests, we have decided to drop ASIABRN from our core coverage. Despite being a non-coverage, we are looking to continue monitoring and updating any meaningful developments.

Change to Forecasts

N.A.

Rating

Our previous rating was UNDERPERFORM

Valuation

Our previous TP of RM1.27 was based on PER 12x on FY17 EPS of 10.6sen.

Risks to Our Call

Faster-than-expected recovery in consumer sentiment.

Lower-than-expected operating expenses.

Source: Kenanga Research - 30 Nov 2015