9M17 net profit of RM41.3m (+64.2% YoY) came above our expectation (88.4% of forecast). No dividend was declared, as expected. Strong and sustained performance in MLM surprised us positively, supported by the improvement in other divisions. Hence, FY17E-FY18E earnings forecasts are raised by 15.1%-19.7%. Maintain MARKET PERFORM with higher Target Price of RM3.21 (previously TP of RM2.68).

Above expectation. 9M17 net profit of RM41.3m (+64.2% YoY) was above our expectation by matching 88.4% of our full-year forecast. Consensus comparison is not available as the stock is not widely tracked. The positive deviation can be attributed to the stronger-than- expected performance in MLM division. No dividend was declared, as expected.

YoY, 9M17 revenue surged 36.3% to RM285.6m, mainly driven by impressive growth in MLM division (+58.6%) thanks to the strengthening of distributor base and strong sales of consumer products. 9M17 operating profit jumped 62.6% to RM54.2m, again boosted by MLM division (+80.3%), with expanded margin of 19.0% (vs 15.9% in 9M16). The MLM division contributed 78.0% of the 9M17 group operating profit (vs 70.6% in 9M16). As a result, 9M17 net profit grew 64.2% to RM41.3m.

QoQ, 3Q17 revenue climbed 7.4% to RM107.2m, from improvement across all divisions - MLM division (+2.5%), Wholesale division (+22.0%) and Retail division (+33.6%), thanks to the festive promotion carried out during the quarter as well as strong sales from the personal care and household consumer products. 3Q17 operating profit increased 5.8% to RM21.4m, mainly driven by MLM division (+6.2%). However, 3Q17 net profit slightly declined by 1.5% to RM15.7m due to a higher effective tax rate of 27.8%.

MLM riding the wave. MLM continued with its momentum, which was driven by both expansion in distributor base and the strong productivity on the back of the effective product strategy and rewarding incentive system. The increased contribution of MLM division has also reduced the risks of other operating divisions, including wholesale and retail divisions, which are exposed to the currency risk and weak consumer sentiment, respectively. Moving forwards, the company is expanding its MLM business venturing into fashion and beauty care, to be on par with other mid-to high-end brands, supported by the expertise of the company non-independent and non-executive director Prof Datuk Dr Choo Yeang Keat (also known as “Jimmy Choo”).

Earnings forecasts upgraded. We raise FY17E and FY18E net profits by 15.1% and 19.7%, respectively, after imputing higher growth assumption for its distributor base.

Maintain MARKET PERFORM with higher Target Price of RM3.21. Correspondingly with the earnings upgrade, our TP is lifted to RM3.21 from TP of RM2.68, based on an unchanged 15.2x PER FY18E which implied +1 SD over the 5-year mean.

Source: Kenanga Research - 30 Mar 2017