FY16 net profit of RM36.4m beat our expectation by 6%. FY16 DPS of 15 sen was above forecast due to the stronger-thanexpected earnings. FY17E net profit upgraded by 7% on higher MLM contribution while FY18E earnings introduced (9.8% growth). Earnings growth momentum expected to be supported by MLM division. Maintain Market Perform, TP lifted to RM2.85 post-earnings upgrade and higher valuation to reflect the strong results and healthy earnings growth.

Slightly above expectation. FY16 net profit of RM36.4m (+22.2% YoY) was slightly above expectations by matching 106% of our full-year forecast. Consensus comparison is not available as the stock is not widely tracked. The stronger-than-expected performance from MLM division might have contributed to the positive deviation. As expected, final DPS of 11 sen was proposed, bringing FY16 total DPS to 15 sen (FY15:15sen) which is above our initial forecast due to the higher-than-expected profit.

YoY, FY16 revenue grew 24.3% to RM298.1m, driven by strong contribution from MLM division (+46.6% to RM198.7m) thanks to the successful strategy transformation to focus on smaller consumer products that attracted more young entrepreneurs to join in as distributors. The higher sales led segmental operating profit to jump 25.8% to RM35.5m. As a result, the Group net profit surged 22.2% to RM36.4m.

QoQ, 4Q16 revenue grew 10.0% to RM88.6m, again driven by MLM division (+23.0% to RM64.2m) as the positive momentum was sustained on the back of the successful transformation strategy which more than offset lower contribution from wholesale (-17.9%) and retail (-6.8%). Operating profit contribution by MLM division grew in tandem with the sales growth by 18.4% to RM12.0m. However, net profit only increased by 14.5% to RM11.2m as the effective tax rate was higher at 26.9% in 4Q16 (vs 3Q16:25.0%).

MLM to anchor growth. We are encouraged by the commendable results as the Group has managed to showcase its flexibility and market awareness in adopting the appropriate strategy to protect its business from the threat of negative economy headwinds and subdued consumer sentiments. As such, we are hopeful that the earnings growth momentum moving forward will continue to be supported by the MLM division on the back of overwhelming growth (>30%) in its distributor force, thanks to the transformed business model which required smaller capital outlay.

Lifting FY17E earnings. We upgrade FY17E net profit by 6.7% after we factor in higher earnings contribution from MLM division. We also take the opportunity to introduce FY18E earnings implying net profit growth of 9.8%.

Maintain Market Perform with higher Target Price of RM2.85 (from RM2.55). Correspondingly with the earnings upgrade, our TP is lifted to RM2.85, based on higher FY17E PER of 13.3x (from 12.9x) which implied +0.5 SD over 5-year mean. We think that the higher valuation is justified by its strong performance; particularly considering it was achieved on the back of weak consumer sentiment due to its successful transformation strategy, which has borne meaningful fruit. We expect the momentum to be sustained as earnings growths are forecasted to be at 14.0% and 9.8% in the next two years.

Source: Kenanga Research - 30 Jun 2016