1Q17 net profit of RM9.7m (+47.1% YoY) was within our expectation at 23.5% of our forecast. No DPS was declared, as expected. MLM is expected to spearhead growth as the Group continues to reap the fruit of a successful strategy transformation. Maintain MARKET PERFORM with higher TP of RM3.60 after rolling over to FY18E. We believe the positives have been mostly priced in, but we still like the company for its strong fundamentals.

Within expectation. 1Q17 net profit of RM9.7m (+47.1% YoY) was within our expectation by matching 23.5% of our full-year forecast. Consensus comparison is not available as the stock is not widely tracked. No DPS was declared, as expected.

YoY, 1Q17 revenue jumped 42.1% to RM78.7m, mainly supported by sustained growth momentum in MLM division (+53.6%) due to the successful strategy transformation and recovery in Wholesale (+52.5%) as 1Q16 was a low base quarter in comparison on post-GST implementation. 1Q17 operating profit surged 44.2% to RM12.6m, primarily driven by the strong performance in MLM division. As a result, 1Q17 net profit rose 47.1% to RM9.7m.

QoQ, 1Q17 revenue declin  ed by 11.2% to RM78.7m as key contributing division MLM recorded lower revenue by 12.1% due to the strong 4Q16 which was boosted by higher sales led by an incentive trip campaign while 1Q17 was also dragged down by less activity due to the fasting month. 1Q17 operating profit fell by 16.5% to RM12.6m due mainly to lower contribution from MLM division on the reasons mentioned above. As a result, 1Q17 net profit slid 13.0% to RM9.7m.

MLM still the hero. MLM continued to spearhead growth on the back of rising numbers of distributor thanks to its transformed business model, which required smaller capital outlay. 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 sentiment. As such, we are hopeful that the earnings growth momentum moving forward will continue to be supported by the MLM division.

Earnings estimates maintained. We made no changes to our earnings forecasts.

Maintain MARKET PERFORM with higher Target Price of RM3.60 (from RM3.25). We rolled over our valuation base year to FY18, and derived our new TP of RM3.60 based on unchanged 15.2x PER, which is on par with +1 SD over its 5-year mean. While we like the company for its resilience amid a challenging environment, the valuation has somewhat reflected the positives after a strong 46.4% rally in YTD share price. As such, we are maintaining our neutral stance on the company on its strong brand names, sturdy balance sheet and generous dividend pay-out.

Source: Kenanga Research - 22 Sep 2016