KUALA LUMPUR: Hai-O Enterprise Bhd’s latest financial results have come in line with Affin Hwang Capital Bhd’s expectations.
“Hai-O reported a nine month to Jan 31, 2017 core net profit improvement of 63.0% year-on-year to RM41mil, in line with our estimates but above consensus, accounting for 74% and 80% of full-year estimates.
“The group’s multi-level-marketing (MLM) division continued to drive earnings as the number of distributors continued to grow strongly. We maintain our earnings and ‘buy’ with a target price of RM3.93 post the company’s recent 1-for-2 bonus issue,” Affin said in a report.
The research house said the group’s 9M17 results continued to be driven by its MLM division (75% of revenue) where turnover and profit before tax for its MLM segment increased by 59% year-on-year and 80% year-on-year to RM213.3mil and RM42.3mil, respectively.
“We attribute this to the group’s growing distributor force which is currently growing at an average of 6,000 distributors per month and has reached over 100,000 distributors year-to-date.
“We believe its ‘small ticket’ items in the personal and household, beverage and healthcare segments and the launch of two new products in the food and beverage category during the financial year also have contributed positively to earnings,” Affin said.
It added that the wholesale division (14% of revenue) recorded a decrease in revenue of 4% year-on-year due to the increase in average selling price which affected sales volume, but saw earnings before interest, tax (Ebit) rise strongly by 42% year-on-year to RM6.9mil due to higher margin sales from premium products.
The retail division posted a slight drop in revenue by 3% year-on-year due to weak consumer sentiment but an increase in EBIT by 42% to RM1mil due to the rationalisation of non-performing outlets.
Affin noted that Hai-O had been actively buying back its shares and currently holds close to 4.6% of its total issued and paid-up share capital, which brings up the possibility of a share-dividend distribution to shareholders.
It said the key risks to its call included loss of distributors in the MLM division, lack of new exciting products to enhance growth and further weakness in the wholesale/retail division.