PP 7767/09/2010(025354)

25 February 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
MARKET DATELINE Company No: 233327 -M

R e su l ts N o t e 25 February 2010

Axis Incorporation Share Price

Fair Value
:
:
RM0.08
RM0.02
Recom : Underperform
(Maintained)
6MFY10 Net Loss Of RM7.4m

Table 1 : Investment Statistics (Axis; Code: 7447) Bloomberg: Axis MK

Net Core EPS Net
FYE Turnover profit EPS EPS# Growth# PER# C.EPS* P/NTA Gearing ROE GDY
Jun (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009** 231.9 (409.3) (267.7) (21.9) n.m. n.m. na n.m. 1.0 n.m. 0.0
2010f 69.6 (14.1) (9.2) (9.2) 57.9 n.m. na n.m. 1.0 n.m. 0.0
2011f 87.0 (13.6) (8.9) (8.9) 3.6 n.m. na n.m. 1.0 n.m. 0.0
2012f 117.4 (11.6) (7.6) (7.6) 14.3 n.m. na n.m. 0.9 n.m. 0.0
Main Market Listing /Non-Trustee Stock / Non Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates
l d
**FY09 represents a 15-month period.

RHBRI Vs. Consensus

♦ 6MFY10 net loss of RM7.4m. Axis reported a lower-than-expected Above n.a.
2QFY06/10 net loss of RM1.7m. Net loss for 1HFY10 amounted to RM7.4m, In Line
which made up 29.9% of our full-year net loss estimate. The key variances Below
were lower-than-expected 6M operating losses of RM6.1m (vs. our full-
Issued Capital (m shares) 152.9
year operating loss forecast of RM22.2m), partly offset by the lower-than-
Market Cap(RMm) 12.2
expected revenue as a result of the slowdown in both local and overseas
Daily Trading Vol (m shs) 1.1
orders. As expected, Axis did not declare any dividend. 52wk Price Range (RM) 0.03-0.14

♦ 2Q10 revenue decreased by 73.7% qoq but 2Q net loss narrowed

Major Shareholders: (%)
Lee Han Boon 16.0
to RM1.7m. Qoq, revenue fell 73.7%, which management attributed to
Saipuddin Lim Abdullah 13.1
the slowdown in both local and overseas orders especially from the US. Koh Tee Jin 7.0
The drop in revenue was also due to the ongoing restructuring exercise.
The 2Q net loss, however, narrowed to RM1.7m from RM5.7m in the 1Q as FYE Jun FY10 FY11 FY12
a result of, we believe, lower raw material prices/direct costs as gross loss EPS chg (%) 42.9 42.8 42.5
Var to Cons (%) n.a. n.a. n.a.
narrowed to RM2.9m in the 2Q from a loss of RM5.9m in the 1Q.
Share Price Chart
♦ Other receivables balance down. Following the RM375.9m provision
made in 5QFY09, Axis’ Trade and Other Receivables balance (as at end-
Dec ’09) stood at RM37.4m vs. end-Dec ’08: RM317.1m. However,
shareholders’ equity as at end-Dec stood at a negative RM277.2m (vs.
positive shareholders’ equity of RM95.9m as at end-Dec ’08). This raises
the issue of going concern for the company moving forward.

♦ Risks. The risks include: 1) stronger-than-expected demand from US and

Europe, which could be due to a quicker-than-expected recovery in the
global economic conditions; 2) appreciating US$ vs. RM; and 3) lower raw Relative Performance To FBM KLCI
material prices like fabric, embroidery and yarn, which could lead to
FBM KLCI
stronger-than-expected margins.

♦ Forecasts. Following the lower-than-expected revenue, we have revised

downwards our FY10-12 revenue forecast by 19.3-46.1% respectively.
However, we have also reduced operating costs and consequently, our Axis Incorpotion
FY10/FY11/FY12 net losses have been revised to
RM14.1m/RM13.6m/RM11.6m (from RM24.6m/RM23.7m/RM20.2m)
respectively. Coverage under CMDF-Bursa
Research Scheme
♦ Investment case. Despite the abovementioned changes, we are
maintaining our fair value of RM0.02/share. Our fair value is based on David Chong, CFA
0.02x FY06/09 asset/share. We are reiterating our Underperform call on (603) 92802179
the stock. david.chong@rhb.com.my

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Table 2. Earnings review

FYE Jun (RMm) Oct-Dec Jul-Sep Oct-Dec QoQ YoY 6MFY09 6MFY10 YoY Comments
(3Q09) (1Q10) (2Q10) (%) (%) (%)
Revenue 39.4 20.6 13.0 (73.7) (66.9) 209.9 33.6 (84.0) Management attributed the sharp yoy
drop in sales to weaker demand from
the US as well as the ongoing
restructuring taking place in the
company.

Operating loss (6.9) (5.1) (1.1) n.m. (84.7) (8.5) (6.1) (28.3)

Finance cost (1.8) (0.6) (0.7) (82.4) (62.5) (9.9) (1.3) (87.1) Total borrowings as at end- Dec ‘09
was RM341.2m vs. end-Sep ’09:
RM342.7m and end-Dec ‘08:
RM374.5m.

Pre-tax loss (8.6) (5.7) (1.7) (99.5) (80.1) (18.4) (7.4) (59.9)
Tax - - - n.m. n.m. (0.4) - n.m.
Net loss (8.6) (5.7) (1.7) (99.5) (80.1) (18.8) (7.4) (60.8)
Core net loss (8.6) (5.7) (1.7) (99.5) (80.1) (18.8) (7.4) (60.8)

Margin (%)
Operating profit (17.4) (24.5) (8.0) (4.1) (18.1)
Pre-tax (21.9) (27.5) (13.1) (8.8) (21.9)
Effective tax rate - - - 2.3 -
Net loss (21.9) (27.5) (13.1) (9.0) (21.9)
Core net loss (21.9) (27.5) (13.1) (9.0) (21.9)

Table 3 : Earnings Forecasts Table 4 : Forecast Assumptions

FYE Jun (RMm) FY09a* FY10F FY11F FY12F FYE Jun FY10F FY11F FY12F

Turnover 231.9 69.6 87.0 117.4 Knitting capacity (m lbs/month) 1.0 1.0 1.0
Turnover growth (%) (32.9) (70.0) 25.0 35.0 Dyeing capacity (m lbs/month) 0.8 1.0 1.0
Garments – Vietnam (‘000 dozens) 250 250 250
EBITDA 2.2 (1.0) - 1.8
EBITDA margin (%) 0.9% -1.5% 0.0% 1.5%

Depreciation (16.0) (10.6) (11.0) (11.0)

Operating loss (13.8) (11.6) (11.0) (9.2)
Net Interest (18.9) (2.5) (2.6) (2.4)
Exceptionals (375.9) - - -

Pretax loss (408.6) (14.1) (13.6) (11.6)

Tax (0.8) - - -
Net loss (409.3) (14.1) (13.6) (11.6)
Core net loss (33.5) (14.1) (13.6) (11.6)
*FY09 represents a 15-month period.
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions
and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to
opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer,
invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no
reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an
interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of
persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular
investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on
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at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon
various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over a
period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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subject to the duties of confidentiality, will be made available upon request.

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of third parties in this respect.

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