• Hai-O’s 6MFY21 revenue and core net profit improved by 2.2% and 28% to RM137.4m and RM19.3m respectively
• 6MFY21 EBIT margin improved 4.3ppt to 18.7% due to better MLM sales mix and cost optimisation initiatives
• We raise our 2021-23E earnings by 2.1-20% but maintain HOLD with a higher TP of RM2.22. This results note marks a transfer of analyst coverage

6MFY21 core net profit at RM19.3m, improved 28% yoy

Hai-O’s 6MFY21 revenue improved 2.2% yoy to RM137.4m, attributable to stronger contribution from its MLM division (+10.5% yoy) boosted by its attractive marketing campaigns during the period to attract new members as well as encouraging sales from its newly launch lady wear products. Nevertheless, higher revenue was partially offset by lower contribution from wholesale (-13.5% yoy due to lower sales of premium patented medicine and lower duty-free sales as a result of travel restriction) and retail (-9.6% yoy due to softer sales of premium health supplements). Excluding one offs (including disposal of vintage tea amounting to RM0.8m), core net profit improved 28% yoy to RM19.3m aided by favourable sales mix and cost optimisation initiatives – above our expectations. Variance to ours was due to higher than expected margin. Hai-O has announced a DPS of 4 sen for 6MFY21 (vs 3 sen in 6MFY20).

Weaker on a sequential basis

On a sequential basis, revenue and core net profit declined -7.2% qoq and -4.6% qoq to RM66.1m and RM9.4m respectively. In particular, MLM revenue declined by -10.5% as member recruitment and renewals normalized in 2QFY21 following aggressive marketing in 1QFY21 whereas a third wave of Covid-19 outbreak affected business activities and deliveries during the quarter. Sequential softness in MLM was, however, slightly cushioned by the wholesale segment which saw higher inter-segment sales.

Maintain HOLD with a higher TP of RM2.22

Going into 3QFY21, the group is expected to step-up member recruitment, run monthly flash sales as well as launching new product assortment which should provide support to its top-line sales. Meanwhile, the wholesale and retail division should benefit from a seasonally stronger festive season in 3QFY21. In view of the stronger than expected results, we raise 2021-23E earnings by 2.1 - 20% on expectations of continued sturdy contribution from MLM and cost optimisation efforts. Post revision, our TP is raised to RM2.22, based on an unchanged 16x PER on FY22 EPS. Maintain HOLD.

Source: Affin Hwang Research - 21 Dec 2020