KUALA LUMPUR (Nov 18): Kenanga IB Research has maintained Market Perform on Asia Brands Bhd at RM3.30 with a lower target price of RM3.44 (from RM3.66) said the company reported 1H15 net profit of RM11.6 million (+20.4%) was below house expectations by accounting for 38% of its full-year forecast.

In a note Tuesday, Kenanga IB said no consensus was available as the stock was not widely tracked by analysts.

The research house said the negative variance was due to the higher-than-expected operating costs on the back of higher-than-expected promotional expenses. 

Kenanga IB Reseaerch said it expects the retail sales business environment to remain challenging where the group would have to embark on aggressive marketing and promotional activities in order to boost the sales due to the weak consumer sentiment.

“Meanwhile, Asia Brands is also facing tougher competition in the market following the gradual establishment of well-known international brands such as Uniqlo and H&M that provide consumers further options of trendy and value-for-money apparels. 

“We tweaked our earnings forecasts by factoring higher operating costs as we opt to be more conservative on the cost assumptions in view of the persistently soft consumer sentiment. As a result, FY15E and FY16E earnings were revised down by 5.9% and 3.5%, respectively

“Correspondingly with our earnings revision, our Target Price was adjusted to RM3.44 (from RM3.66). Our valuation is unchanged at 9.5x PER FY15E, implying +0.5 SD over its 3-year mean,” it said.