Caring’s 1HFY15 (May) results came in below our and street’s estimates at  35%/34.4%  of  the respective  full-year  forecasts. Maintain  NEUTRAL with a revised TP  of MYR1.10 (from MYR1.27), implying  7.6% downside. While  we  expect  the  challenging  operating  environment  to  prevail  for the rest of the year,  we see better  prospects for Caring going forward with its new outlets opened last year starting to bear fruit.

Below  expectations.  Caring  Pharmacy’s  (Caring)  1HFY15  earnings came  in  below  our  previous  projection  and  consensus  estimate,  at 35%/34.4%  of the  respective  full-year  forecasts.  2QFY15  revenue  and net profit  rose  0.7% and 175.6% QoQ,  driven by: i)  better contributionsfrom its existing and new outlets, ii) higher revenue from advertising, and iii)  lower  administrative  costs.  Margins  were  up  QoQ,  on  the  back  of improved  earnings.  In  1HFY15,  revenue  climbed  5.8%  YoY  due  to improved  contributions from  its  new outlets, while  net profit declined  by 60.3% YoY amid the intensifying price war within the market. Caring also disclosed  that  it  has  opened  two  new  shopping mall  outlets  during the quarter, bringing its

Gradually  recovering.  Although  Caring’s  2QFY15  earnings  came  in below our  and consensus  expectations, we note improvements  in both revenue  and  net  profit  QoQ.  This  was  mainly  attributed  to:  i) contributions  from  12  outlets  opened  in  2HFY14,  ii)  contributions  from four new outlets opened in 1HFY15, and iii) better cost management. We expect improvement in revenue and net profit  to continue into 2HFY15.  Risks.  These  include:  i)  increasing  price  competition,  ii) underperformance  of  new  outlets,  iii)  increasing  operating  costsespecially personnel and marketing, and iv) scarcity of good locations for new outlets.

Forecasts.  We  cut  our  FY15  earnings  forecast  by  28.9%  in  view  of  aslower  earnings  recovery.  However,  we  are  keeping  our  FY16-17forecasts intact for now.

Maintain NEUTRAL. We maintain our NEUTRAL call with a lower  TP of MYR1.10 (from MYR1.27),  pegged to 16x FY15F P/E. We believe  this is fair  as  the  lower  TP  reflects  our  view  that  a  challenging  operating environment  could  potentially  result  in  a  slower  earnings  recovery  for Caring.

Source: RHB