Hot Stock Zhulian falls 3% after another quarterly earnings drop

by **Cals** Fri 23 Jan 2015, 01:54

Hot Stock
Zhulian falls 3% after another quarterly earnings drop

KUALA LUMPUR (Jan 22): Zhulian Corp Bhd fell by as much as 3.08% this morning after reporting another set of contraction in its quarterly earnings, with Kenanga Investment Bank declaring it is negative on the multi-level marketing (MLM) provider and retailer.
At 11:55 am, Zhulian (Fundamental: 2.25; Valuation: 0.9) pared its losses to five sen or 2.2% to settle at RM2.22. However, trading volume was muted at 81,500.
At its last traded price, Zhulian’s counter has lost more than 49.2% since its one-year high of RM4.37 on Jan 22, 2014.
Once a favourite among institutions due to its generous dividend payouts, Zhulian yesterday reported a 17.73% fall in net profit for the fourth quarter ended Nov 30, 2014 (4QFY14).
The waning demand from local and overseas investors also resulted in a 29.83% drop in its sales to RM54.71 million.
For its FY14, Zhulian’s net profit was slashed by 66.02% to RM47.12 million, or 10.24 sen per share. Revenue fell 41.57% to RM243.67 million.
Zhulian’s dividend per share for 4QFY14 was also 71.43% lower year-on-year at two sen per share. Last year, it declared a dividend of seven per share. Full-year dividend amounted to 10 sen per share, against the 16 sen per share in the previous corresponding year.
Kenanga, in a report today, said it remained negative on Zhulian as the company’s strategy of adopting young entrepreneurs looking for low-entry costs seems to show any recovery.
The bank-backed research outfit maintained its “underperform” rating on Zhulian. Its target price of RM2 indicated that the shares could be worth 9.91% less than the last traded price.
“Although the strategy might be able to attract higher core distributor force in a long run, we foresee the earnings to be dragged down by the transition period in shorter run, based on the experience of another local MLM company,” said Kenanga analyst Soong Wei Siang in the note.
“Moving forward, the local market is expected to be dogged by continuous stiff competition as well as persistently soft consumer sentiments while the overseas market is still struggling to recover from previous setbacks,” Soong said.
[size=12](Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)[/size]