Period

4Q15/FY15

Actual vs. Expectations

FY15 net profit of RM63.9m (-36.0%) was below expectation by merely accounting for 78.9% of our full-year forecast. Consensus comparison is not available as the stock is not widely tracked.

The negative deviation can be attributed to higherthan- expected sales incentive provisions and operating costs.

Dividends

As expected, a fourth interim single tier DPS of 15.0 sen was declared, lifting FY15 DPS to 45.0 sen (vs FY14: 55.0 sen). The dividend is within our expectation despite the lower-than-expected net profit due to high dividend pay-out ratio of 115.7% (FY14: 90.5%).

Key Results Highlights

YoY, FY15 revenue surged 19.2% beyond the RM1b mark, an impressive feat considering the weak consumer sentiments and GST implantation. As a result, higher operating expense (+43.3%) was incurred to reward the distributors with bonuses and incentives trips. That together with higher effective tax rate of 28.4% (vs. FY14: 25.8%) dragged net profit down by 36.0% to RM63.9m.

QoQ, 4Q15 revenue jumped 11.0% to RM268.3m thanks to the successful launching of weight management products under the Body Key brand in September 2015. Operating expenses were inflated 35.9% on the back of year-end recognition which in turn squeezed the net profit by 56.9% to RM5.1m.

Outlook

We are encouraged by the sales achievement of over RM1b in view of the weak consumer sentiments. GST implementation was a blessing in disguise with the stocking-up activities in 1Q15 (1Q15 sales up 51.0% YoY) motivating the distributors as the spikeup in sales drove them closer to their sales target.

Moving forward, we expect the Group to continue driving sales by encouraging its distributors with sales incentives as well as embarking on more marketing and sales activities and new product launches to counter the weak consumer sentiments.

Change to Forecasts

We trim FY16E net profit by 11.8% after imputing higher operating costs and introduce FY17E numbers with net profit growth of 8.2%.

Rating

Maintain MARKET PERFORM

Valuation

Correspondingly, our Target Price is revised lower to RM9.16 (from RM9.83), based on 19x PER FY16E.

The valuation is unchanged at -1 SD over 3-year mean to reflect the challenging business environment.

Our TP offers total return of 3.7% including dividend yield; thus, we maintain our MP rating.

Risks

Unfavorable change in product mix

Worse-than-expected consumer sentiment.

Source: Kenanga Research - 23 Feb 2016