Ajisen's net profit fell 49% to HKD173m

But here's why it's still better than expected.

According to Maybank Kim Eng, Ajisen reported an adjusted FY12 net profit of HKD173m (-49% YoY), ahead of both Maybank and Street expectations, while sales of HKD3b (-1% YoY) were largely in line. 

Maybank attributes the discrepancy to better-than-expected GPM and an SSSG recovery-led operating leverage HoH in 2H12.

Here's more:

This contrasts with our original expectation that its sales and margins were likely to come under pressure owing to anti-Japanese sentiment in China.

Key highlights are: i) the number of new store additions (-1) unsurprisingly lagged management’s target of 30-40; ii) its payout ratio was lifted to 99% with inclusion of a special dividend; and iii) its balance sheet was strong as usual, with net cash of HKD1.6b (~30% of current market cap).

Overall, we do not see meaningful takeaways from the announcement, as all eyes will be on Ajisen's FY13 YTD performance and outlook for the year. We are also interested to find out whether the satisfactory momentum in late 2012 has sustained into 2013.

We are not surprised to see a positive share price reaction in response to the better-than-expected bottom line. The market's key concerns include its upcoming expansion plan, SSSG update, margin outlook and changes in the competitive landscape.