Zhulian ... Jan10

4QFY09 Results – within expectations

• Zhulian’s full-year FY09 results came in within our expectations with net profit of RM82.1m, which is close to our projection of RM79.7m.

• Despite a slow macroeconomic environment in FY09, the Group managed to registere a modest 3.9% yoy and 9.9% yoy growth in revenue and net profit respectively. Furthermore, we are also encouraged by its achievement in improving its net profit margin to 26.0% in FY09 vs. 24.6% in FY08.

• We attribute the robust results to successful rollout of new products, growth in distributorship,effective cost management and lower effective tax rate. In FY09, Zhulian introduced a number of new products, which included several gold-plated and rhodium-plated jewellery, the ISO 7 Mixed Fruits and Vegetables Extract Beverages, the Premix Coco Drink, as well as the new sanitary napkin range named WANISA.

• Meanwhile, Zhulian’s balance sheet continues to strengthen further, with NTA/share growing to 93 sen in FY09 from 81 sen in FY08. Similarly, net cash/share rose to 36 sen from 31 sen during the same period. We note that the Group’s net operating cashflow also increased 35% yoy to RM68m in FY09.

• Zhulian declared a fourth interim single-tier dividend of 3 sen, as well as a special single-tier dividend of 2 sen for the quarter under review. This brings total FY09 net dividend to 14 sen, which surpassed our expectation of 12 sen. At current share price, Zhulian offers an attractive net dividend yield of 7.5%.

• Prospects in FY10 remain bright for Zhulian. We expect the uptrend growth in revenue and net profit to prevail. The management has identified a number of growth plans, which amongst others, include expansion of manufacturing and warehousing floor space in Malaysia and Thailand (warehousing only), setup of new distribution centre in Sarawak and rollout of newproducts in FY10. Zhulian’s distributor force is growing steadily too, reaching 480,000 at present compared to 420,000 in early FY09.

• Against this positive backdrop, we raise our FY10 net profit estimate 3% to RM87.0m, which translates into an EPS10 of 25.2 sen. We also increase expected FY10 dividend payout to 14 sen from 12 sen earlier.


Recommendation:-
ZJ Research maintain our Buy call on Zhulian with a slightly higher fair value of RM2.27 (from RM2.21), derived from pegging its EPS10f against a peer average PER of 9x. Our optimism is supported by 1) the Group’s healthy earnings growth and cashflow generation, 2) management’s clear growth strategy, and 3) solid balance sheet. As such, we opine that its current valuation, at 7.4x FY10 PER, remains attractive. Zhulian also offers attractive net dividend yield of 7.5% which is on par with Amway, the industry leader in direct marketing.