■ 1QFY4/24 core net profit came in below expectations, at 15.5% of our and 13.4% of Bloomberg consensus’ FY4/24F estimates.

■ We believe that improvements in consumer spending power via targeted subsidies/policies for the B40 and M40 groups may play through in FY25F.

■ We reiterate our Hold rating on Beshom with a TP of RM0.99, based on a 15.7x CY24F P/E multiple (0.5 s.d. below its historical mean).

1Q24 core net profit tracking below at 15.5% of our FY24F estimates

● Beshom Holdings recorded a 1QFY4/24 core net profit of RM2.6m (-52.1% yoy, -1.9% qoq), which was below expectations at 15.5% of our and 13.4% of Bloomberg consensus’ FY4/24F estimates, as softer consumer spending hurt revenues. We believe sales may see some recovery in upcoming quarters as incentive campaigns pick up.

● Beshom’s three key segments (MLM, Wholesale and Retail) were impacted by soft consumer sentiment, amid inflationary pressures, and dampened discretionary spending power. 1QFY4/24 revenue of RM35.2m (-27.1% yoy, -9.6% qoq) was below expectations, at 20.4% of our and 18.9% of Bloomberg consensus’ FY4/24F estimates.

● MLM segment saw 1QFY24 sales fall 42.2% yoy to RM12.4m, in part due to the lack of incentive trip campaigns during the quarter.

Stronger consumer spending power may play through in FY25F

● As we alluded to in our previous report, “Weakness in MLM set to continue,” dated 8 Sep 2023, Beshom’s key target customers (B40 and M40 income groups) in the MLM segment may see improvements in their spending power as the Malaysian government rolls out stimulus/subsidy measures and/or policies (e.g. it raised the monthly minimum wage from RM1,200 to RM1,500 back in Jul 23).

● While a rise in consumer spending power would be directly beneficial to Beshom’s revenue, we believe this may only play through from FY25F onwards.

Reiterate Hold with a TP of RM0.99

● We maintain our Hold rating on Beshom given the lack of near-term catalysts. Our TP of RM0.99 is based on a 15.7x CY24F P/E multiple, which is 0.5 s.d. below its historical mean to reflect the weak consumer spending environment. We believe share price will remain supported by a 4.4% FY24F dividend yield.

● Key upside risks: stronger-than-expected subsidies, stimulus or policies targeting the B40 and M40 income groups being rolled out by the Malaysian government.

● Key downside risks: further deterioration in consumer spending power due to weakness in the economy, and loss of operating efficiencies as revenues decline. 

Source: CGS-CIMB Research - 06 Sep 2023