■ We maintain a Hold rating on Beshom, with a lower TP of RM0.99, as we revise our FY4/25-26F EPS estimates downwards by 14-17%.

■ We believe a recovery in MLM sales, if any, will only be seen from FY4/25F onwards, arising from higher wages and other government stimulus.

■ We estimate that Beshom’s retail and wholesale segments will see largely flat earnings growth ahead, in line with historical trends.

Declining sales and membership for the MLM business

Beshom Holdings’ multi-level marketing (MLM) sales have fallen significantly from 2021 levels (-59%; Fig 1), which we attribute to: i) a decrease in consumer spending power, ii) end of Covid-19 stimulus measures, and iii) the lack of further EPF withdrawal programmes. According to management, average MLM member spending in 2Q23 has declined to c.RM400-500 per month (from c.RM1,000 per month in 2021), while member/distributor count has fallen to c.45,000 (from c.60,000-70,000 in early-2022). In our view, Beshom’s declining MLM sales poses a snowball effect risk — if its products are perceived to be hard to sell, members become increasingly unwilling to hold its products.

Uphill battle for MLM, but government stimulus/policies may help

Beshom is making efforts to increase product attractiveness via: i) new product launches, ii) cheaper mid-range products, iii) smaller package deals, and iv) lower membership fees. With the MLM segment’s key target customers seeing weakness in spending power, in our view, any government stimulus and/or policies (e.g. raising wages), particularly those targeted at the B40 and M40 income groups, could be beneficial to Beshom’s sales and earnings outlook. However, we believe benefits from such policies, if any, will only trickle down to earnings in FY4/25-26F. We estimate that every RM50m increase in revenue p.a. would translate into a c.RM5.3m (25-27%) increase to our FY4/25-26F core net profit.

Retail and wholesale segments remain stable

Historically, the wholesale and retail divisions have been stable performers, respectively contributing c.RM60m and c.RM40m in revenue per year. We expect these revenues to see stable low-digit growth ahead, on i) revised sales incentives, ii) promotional campaigns, and iii) a ramp-up in international tourist arrivals in FY4/24F.

Reiterate Hold, with a lower TP of RM0.99

We maintain a Hold rating, with a lower TP of RM0.99 (from RM1.10), based on 15.7x CY4/24F P/E (-0.5 s.d. below historical mean amid weak consumer sentiment). Our FY24-25F earnings are cut amid the softer consumer spending environment amid rising inflation and lower operating efficiency. Key upside risks: stronger-than-expected stimulus/policies targeted at the B40 and M40 income groups, improving the spending power of Beshom’s key MLM customers and providing a larger- or earlier-than-expected lift to earnings. Key downside risks: weaker-than-expected consumer spending, higher-than-expected input costs, and lower-than-expected operating efficiencies.

Source: CGS-CIMB Research - 8 Sep 2023