From ZJ Research dated 18 April 2012
1QFY12 Results Review
• Zhulian turned in a strong 1QFY12 performance with net profit rising 29.2% y-o-y to RM28.4
mln. In fact, this is the strongest 1Q results yet since its listing in 2007, and second strongest
after the RM28.8 mln net profit registered in the preceding quarter (4QFY11). The results were
broadly within expectations, having reach 27% of our FY12 net profit estimate of RM102.8 mln.
• 1QFY12 revenue grew 29.8% y-o-y to RM111.9 mln on higher sales contribution from both
export and domestic markets, which expanded 42% and 18% y-o-y respectively. Thailand was
the strongest growth export market while domestic growth was largely boosted by the healthy
sales from F&B and nutritional products. We understand Zhulian rolled out several new
products during the quarter under review, such as new cosmetic products under the Nadra
brand, and new vitamins under the Zhubee brand (Vitamin C with Lysine and Omega 3 Plus).
• In line with the solid top-line growth, 1QFY12 net profit too soared 29.2% to RM28.2 mln,
yielding a net profit margin of 25.5%. As expected, the contribution from its Thai associate
remains very significant at about 40% of the Group’s net profit.
• On a sequential basis, 1QFY12 net profit was down marginally by 1.4% q-o-q despite revenue
rising 28.8% q-o-q, principally due to change in sales mix and a weakened USD during the
period under review. As a result, net profit margin declined to 25.4% vs. 33.2% in 1QFY11.
• Cash flow-wise, Zhulian registered a positive net operating cash flow (NOCF) of RM23.3 mln in
1QFY12, significantly higher from NOCF of RM7.8 mln 1QFY11, and remains debt-free. Its solid
balance sheet is backed by a NTA/share of 88 sen and a net cash/share of 29 sen as at endFebruary 2012.
• With results roughly within expectations, we maintain our present FY12 net profit estimate of
RM102.8 mln at this juncture.
• In line with its quarterly dividend payout practice, Zhulian declared a first interim single-tier
dividend of 3 sen.
• Going forward, we remain positive on the Group’s outlook, underpinned by the planned rollout
of new product over the next few quarters (which include nutritional products, personal care
products, cookware and F&B products), continuous marketing and incentive campaigns for the
distributors and its thriving business in Thailand. Under Zhulian’s capable management,
contribution from its associate company in Thailand has grown in strength, from a mere RM2.6
mln in 1QFY07 to the current RM10.9 mln in 1QFY12. Meanwhile, in terms geographical sales
breakdown, Malaysia and Thailand now contribute 95% to the Group revenue with the balance
largely coming from Indonesia. Its distributor force too has grown at a CAGR of 10% over the
past 5 years, increasing to the present 584,000 from circa 365,000 in 2007.
We maintain our Buy call on Zhulian with an unchanged fair value of RM2.40, pegging FY12 net profit
estimate against the peer-benchmarked target PER of 11x. We continue to like Zhulian for its i)
earnings growth prospects, ii) solid balance sheet, iii) higher-than-peers net profit margin, and iv)
undemanding valuation at prospective FY12 PER of 8.8x supported by an attractive net yield of 6.1%.
In our opinion, Zhulian offers a cheaper exposure into the MLM business by comparison to market
leader, Amway Holdings, which is trading at a forward PER of 18x
Current Price: RM1.90
Target Price: RM2.40
ZJ Research published a paper dated 26 January 2012, after ZHULIAN announced the quarterly results.
4QFY11 Results – within expectations
• Zhulian posted a full year net profit of RM95.3 mln which was broadly within our expectations, reaching 104% of our full-year projection.
• FY11 net profit was up 9.5% y-o-y in tandem with the 10.8% rise in revenue to RM357.5 mln. We attribute the improved bottom-line performance to continued rollout of new products, successful marketing activities and incentives to distributors that kept them motivated. We note that its associate in Thailand is increasingly becoming a significant profit contributor, having generated RM35.5 mln in FY11, its highest contribution since listing. The associate’s profit has grown 2.3-fold from RM15.2 mln in FY07 to the current level. The Group also successfully sustained its FY11 net profit margin at approximately 27% despite the generally challenging business environment.
• 4QFY11 revenue was 5.4% lower q-o-q at RM86.8 mln, having come off a seasonally strong third quarter that was augmented by the distributors stocking up for the Hari Raya festive season. Notwithstanding the reduced revenue, Zhulian managed to register a 18.4% y-o-y rise in net profit at RM28.8 mln, boosted by higher contribution from its associate and stronger USD against RM during the quarter under review. As a result, net profit margin surged almost 7-ppt to 33.2%, its highest in recent years. The last time it achieve above-30% net profit margin was in 4QFY07.
• Cash flow-wise, Zhulian generated RM73.6 mln net cash from operating activities (against RM80.7 mln in FY10) and continues to remain debt-free. Its operations are supported by a strong balance sheet comprising a NTA/share of 85 sen and a net cash/share of 28 sen as at end-November 2011.
• After re-assessing our earnings model following the 4QFY11 results, we upgraded our FY12 revenue and net profit estimates by 4% and 6% to RM384.7 mln and RM102.8 mln respectively,on assumptions of better sales as well as continued increase in contribution from its Thai associate.
• As expected, Zhulian declared a fourth interim single-tier dividend of 3 sen, bringing total FY11 dividend to 12 sen, in line with the Group’s 60% dividend payout policy. This translates into an attractive prospective net yield of 6.3%.
We maintain our Buy call on Zhulian but raise our fair value to RM2.40 (from RM2.18) following our
earnings upgrade. We continue to derive our fair value by pegging FY12 net profit estimate against the peer-benchmarked target PER of 11x.
We continue to like Zhulian for its
i) earnings growth prospects,
ii) solid balance sheet,
iii) higher-than-peers net profit margin, and
iv) undemanding valuation at prospective FY12 PER of 8.5x supported by an attractive net yield of 6.3%. In our opinion, Zhulian offers a cheaper exposure into the MLM business by comparison to market leader, Amway Holdings, which is trading at a forward PER of 18x.
Disclaimer: This is a personal finance blog, reflecting my personal views. All information provided here, including recommendations (if any), should be treated for informational purposes only. The blog owner should not be held liable for any informational errors, incompleteness, or delays, or for any actions taken in connection on information contained herein.
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