Zhulian - uncertainty

While Zhulian Corp Bhd has seen its share price plunge to a year low, there are still concerns that the selling pressure has yet to dry up amid expectations of further drop in earnings in the coming quarters.

Thai political unrest had reversed the MLM firm’s growth streak. The coming’s quarterly net profit had been between rm13 million and rm17 million for the past two financial quarters.

This could mean that Zhulian’s earnings are probably at around this level with contraction of contribution from Thailand. Thailand made up nearly 60% of its revenue for the financial year ended Nov 30 2013. The scrapping of the rice subsidy has affected the income of the farmers who are Zhulian’s target market.

At current PER of 11 times (assuming an annual net profit of rm80 million for FY2014) or 17.9 sen per share, its share price (01 June 2014) should be around rm1.90.

Zhulian had a dividend payout policy of up to 60^ of its annual net profit.

Going forward, Zhulian could face more selling pressure if the stock were to adhere to its current valuations (01 June 2014). Investors had been expecting too much from the company after seeing strong growths in the past. The muted share price (May 2014) performance is because of investors’ high expectations and Zhulian’s lower contribution from its Thailand market.

Zhulian is still seeking growth from its Thailand market despite the political unrest there stemming from a failed rice subsidy scheme which had impeded many a rice farmer’s income stream.

Zhulian will see growth in its Indonesian and Myanmar markets.