• Hai-O’s 9MFY21 revenue and core net profit improved by 1.6% and 29.5% to RM204.6m and RM29.4m respectively – in line with our expectations
• On a QoQ basis, Hai-O saw an increase in revenue of 1.7% due to CNY sales. The MLM division, however, partially offset the gain as CMCO/MCO affected business activities of distributors
• We make no changes to our FY2021-23 earnings estimates. Maintain a HOLD rating with an unchanged TP of RM2.22

9MFY21 Core Net Profit at RM29.4m, Improved 29.5% Yoy

Hai-O’s 9MFY21 revenue improved 1.6% yoy to RM204.6m, attributable to a stronger contribution from its MLM division (+9.5% yoy) as the group saw an overwhelming response for one of its newly launched lady wear series. The division was also able to leverage on e-commerce and social media platforms to increase member recruitment. Nevertheless, this was partially offset by lower contributions from wholesale (-9% yoy due to lower sales in the duty-free sales as a result of travel restrictions) and retail (-15.2% yoy from subdued consumer sentiment). Excluding one-offs, core net profit improved 29.5% yoy to RM29.4m aided by a better net operating margin of 19.1% (+4.1ppt yoy) from favourable sales mix and cost optimisation initiatives. Results were within our expectations.

Impact From Reimplementation of CMCO/MCO Was Offset by CNY Sales

On a sequential basis, revenue and core net profit increased 1.7% qoq and 6.9% qoq to RM67.2m and RM10.1m respectively, boosted by contributions from wholesale (+29.7% qoq from higher CNY hampers and Chinese medicated tonic sales), retailing (+16.9% qoq due to CNY campaigns being held at outlets and e-commerce platforms) and others (+60% qoq). Hai-O’s MLM division, however, saw a decline in contribution of 10.6% as the reimplementation of CMCO and MCO had affected the business activities of distributors. Nevertheless, PBT for the MLM division improved by 7% from better cost optimisation effort. No dividend was proposed during the quarter under review.

Maintain HOLD With An Unchanged TP of RM2.22

We leave our FY2021-2023 earnings forecasts unchanged. We reiterate our HOLD call on the stock as we deem it as fairly valued at this juncture with an unchanged FY22E 16x PER price target of RM2.22. We also note that the MLM division is currently embarking on a rebranding exercise and is improving on its recruitment activities. Risks: i) recovery/ fall in MLM distributor base; ii) better-/worse-than-expected take-up rate for its new products; (iii) disruptions in the supply chain and (iv) higher/lower cost savings.

Source: Affin Hwang Research - 29 Mar 2021