Hot Stock Zhulian falls 21% on weaker 4Q profit

by **Cals** Thu 23 Jan 2014, 18:35

Hot Stock Zhulian falls 21% on weaker 4Q profit

Business & Markets 2014

Written by Chong Jin Hun of theedgemalaysia.com

Thursday, 23 January 2014 11:08

KUALA LUMPUR (Jan 23): Zhulian Corp Bhd fell as much as 96 sen or 21% to RM3.65 after the multi-level marketing firm and jewellery manufacturer reported weaker fourth quarter results.

Full-year results which missed market forecast, has prompted analysts to downgrade Zhulian. At 10.58am, Zhulian was traded at RM3.75 within some seven million shares done.

Zhulian was the second-largest decliner across the bourse.

HwangDBS Vickers Research Sdn Bhd analysts Kevin Wong and Chong Tjen San wrote in a note today that the firm has cut its earnings per share (EPS) forecast for Zhulian by 17%-19%.

The EPS downgrade comes with a lower target price (TP) of RM3.40 for Zhulian shares compared to RM3.90 previously.

"The stock has gained 81% in 2013. At 17x 2014 earnings, the stock is now trading at +2 SD of its 8-year mean. We downgrade our rating to Fully Valued (from Hold) with a lower RM3.40TP (from RM3.90) pegged to 12x FY15F EPS of 28 sen.

"In view of the more challenging outlook, we think its historical dividend payout of 60% is unlikely to surprise," the analysts said.

Yesterday, Zhulian said net profit fell 56% to RM13.74 million in the fourth quarter ended November 30, 2013 (4QFY13) from RM31.33 million a year earlier. Revenue declined to RM77.97 million from RM117.18 million.

Full-year (FY13) net profit, however rose to RM121.01 million from RM117.1 million a year earlier. Revenue was lower at RM417.06 million versus RM450.43 million.

Despite weaker 4QFY13 results, Zhulian plans to pay total dividends of seven sen a share for the quarter. These dividends comprise a three sen interim payout and a special payment of four sen.

The 4QFY13 dividends bring the full-year payout to 16 sen a share. At Zhulian's current share price of RM3.75, the full-year payout translates into a 4% yield.

Zhulian's FY13 net profit came in below HwangDBS' forecast.

"FY13 net profit of RM121m (+3.3% y-o-y) was 92% of our full-year estimate.

"While the 4th quarter used to be the seasonally strongest of the year, this was not the case in 2013, and 4Q13 posted the lowest quarterly earnings in three years," the analysts said.

For comparison, Kenanga Investment Bank Bhd said Zhulian's FY13 net profit came in below Kenanga's and consensus estimates.

In a note today, Kenanga said Zhulian's FY13 net profit accounted for 88% of Kenanga's and consensus full-year forecast.

Kenanga said it has downgraded its FY14-FY15 net profit estimates for Zhulian by 14% each and revised downward its recommendation for the stock to "market perform".

"We are cutting our TP from RM5.40 to RM4.70 based on an unchanged fwd. PER valuation of 15.8x but lowered FY14E EPS of 29.9 sen. We have already reflected the main earnings risk from Thailand into our estimates.

"Thus, we left our targeted PER unchanged, as we believe that the Thailand political crisis would be short-lived and the ascribed PER is still at a 16% discount to Amway’s 18.7x," Kenanga said.