Hai-O is better than expected, says RHB

Hai-O is better than expected, says RHB

Tags: Brokers Call | Hai-O | RHB Research

Written by Financial Daily
Thursday, 01 October 2009 10:51

RHB Research has reaffirmed its outperform recommendation on HAI-O ENTERPRISE BHD [] while raising its fair value to RM6.80 from RM5.80 following the announcement of its 1QFY10 results, which came in above expectations.

“Hai-O’s net profit for its first quarter accounted for 33% of our and consensus full-year net profit forecasts. The key variance was mainly due to higher-than-expected contribution from its multi-level marketing (MLM), which grew by 42% year-on-year on the back of a higher-than-expected increase in core distributor force (CDF) as well as distributor productivity from buoyant sales of its health and wellness products and higher advertising and promotion activities and lower effective tax rate,” said RHB.

RHB also revised its FY10 to FY12 forecasts by 15% to 20% after raising its assumptions for Hai-O’s distributor retention rate and productivity and reducing its tax rate assumptions.

The research house is expecting Hai-O’s net profit for FY10, FY11 and FY12 to come in at RM65.1 million, RM75.2 million and RM84.4 million respectively.

“Following the stronger-than-expected distributor productivity for 1QFY10, we have revised upwards our assumptions for productivity to 5% in FY2010 from 1% previously but maintain our assumption of 3% increase for FY11 and 1% increase for FY12. While we retain our distributor growth numbers, we increased our member retention rate to 22% per annum compared to 20% previously, following the stronger CDF numbers,” added RHB.

According to RHB, the group’s MLM division remains its main driver, and expects distributor growth numbers to remain at 12,000 to 15,000 per annum for FY10 to FY12.

“Recall that Hai-O’s MLM division is in the midst of venturing into the Indonesian market, having started its recruitment drive from July this year. Hai-O would be investing a total of US$480,000 (RM1.66 million), of which US$120,000 is for capital expenditure while the remaining US$360,000 is for working capital.”

RHB also said Hai-O’s management was targeting a conservative 5000 to 10,000 in new members in FY10, and forecast a minimum of two years to break even. “Note we have yet to input any contributions from Indonesia, pending feedback from management on its recruitment activities.”

The research house said among the risks faced by Hai-O include termination of supply agreements from its suppliers in China, a stronger-than-expected strengthening of the US dollar and a weaker-than-expected increase in consumer spending.

Hai-O jumped 34 sen to close at RM6.03 yesterday.


This article appeared in The Edge Financial Daily, October 1, 2009.