Kenanga: Asia Brands 4Q profit above expectations, maintain "outperform"

Kenanga: Asia Brands 4Q profit above expectations, maintain "outperform"
Business & Markets 2013
Written by Kamarul Anwar of theedgemalaysia.com
Monday, 03 June 2013 14:30


A + / A - / Reset
KUALA LUMPUR (June 3): Asia Brands Bhd’s net profit for its latest quarter ended March 31, 2013 (4QFY13) surpassed Kenanga Investment Bank’s expectation, which induced the research house to retain its “outperform” rating on the clothing retailer. Its target price was also kept at RM4.

In a note today, Kenanga analyst Lawrence Yeo Eng Chien said Asia Brands’ 4QFY13 net profit of RM10.3 million brought the full-year’s net profit to RM17.2 million.

“The strong set of results was above expectations and accounted for 110.3% of our full-year estimate of RM15.6 million. This was due to lower than anticipated operating expenses for the quarter,” he said in the note today.

However, he added while Asia Brands’ FY13 net profit came in ahead of Kenanga’s expectation, the research house is maintaining its FY14 and FY15 earnings estimates of RM33.8 million and RM41 million pending Asia Brands’ 1QFY14 results.

The quarter, Yeo said, is seasonally the company’s weakest.

He added going forward, Kenanga expects Asia Brands’ combined synergies of its enlarged group to be even more pronounced as the new business segments are expected to complement and enhance the product variety of the group, increase customer and supplier base as well as eliminate duplicate resources.

According to Yeo, Asia Brands’ 4QFY13’s revenue of RM81.9 million grew grew by 156.6% year-on-year due to its recent acquisition of Asia Brands Corporation Bhd’s subsidiaries, which owned core brands of Anakku and Audrey.

Earnings from the brands were consolidated into the group’s results in December 2012.

“For the same reason, the net profit also rose by 224.8% year-on-year from RM3.2 million in 4QFY12,” Kenanga’s Yeo explained.

He also said Asia Brands’ plans to pare down its gearing level seem to be progressing, which could lead to an improvement in its net profit.

“Going to FY14, we expect the group to benefit from gains on the disposal of its non-core and non-revenue generating assets in addition to its recently proposed private placement.”

The placement proposal is expected to raise RM22 million, which will be used to pay bank borrowings.

“The proposed private placement will thus result in a 27.6% to 28.1% reduction in net gearing to 0.34 times to 0.29 times based on our pro-forma FY14 and FY15 forecast. Additionally, Asia Brands would also enjoy interest savings of approximately RM1.1 million per annum (assuming a 5% interest rate) which would lead to an improvement in net profit of 1.8% to 2.0% for FY14 to FY15 estimates,” said Yeo.

At noon break, Asia Brands’ counter was traded unchanged at RM3.50 after reaching a high of RM3.55. A total of 25,800 shares were traded.