Result

• Hai-O posted a net profit of RM10.3m during 3QFY21, which increased 1.0% qoq and 35.5% yoy on the back of slightly higher revenue, +1.7% qoq and +0.3% yoy.

• As for 9MFY21, the Group registered a net profit of RM31m which jumped 36.6% yoy. Meanwhile, revenue stood at RM204.5m which grew 1.5% yoy. The better performance was underpinned by greater sales from MLM segment on the back of improved margins from MLM and Wholesale segments.

• Within expectations. 9MFY21’s net profit of RM31m was within our in-house (74.9% of full year earnings estimates) and market (76.5%) expectation.

Comment

• MCO 2.0 dragged down MLM segment’s sales on qoq basis amid strong sales from Wholesale and Retail segments. Hai-O’s revenue and PBT inched up 1.7% qoq and 1.5% qoq respectively during 3QFY21. Better revenue was buoyed by the Wholesale (+28.9% qoq) and Retail (+15.9%) segments, thanks to its CNY sales promotional campaign. Nevertheless, revenue for MLM segment tumbled 10.6% qoq, dented by re-implementation of MCO 2.0 coupled with long year-end holiday. However, PBT margin for MLM and Retail segments were higher, +3.5ppts and +5.3ppts respectively during 3QFY21 given better cost optimization strategies which offset disappointing PBT margin from Wholesale segment (-15.8ppts).

• Sturdy sales from MLM segment boosted YoY performance amid better cost optimisation measure from Wholesale segment. Revenue improved 0.3% yoy underpinned by higher sales from MLM segment (+7.6%) yoy despite slumbering Wholesale and Retail segments which were down 1.8% yoy and 23.4% yoy respectively. The encouraging sales from MLM segment was spurred by higher contribution from online sales as well as massive sales on its small ticket items. Additionally, number of new members’ recruitment was also higher during this period. Besides, the Group’s PBT rose 24.5% yoy, buoyed by better margins and effective cost measures from Wholesale segment (+1.5ppts) as well as MLM segment (+3.7ppts).

• Encouraging 9MFY21. Cumulatively, Hai-O’s 9MFY21 revenue and PBT increased 1.5% yoy and 33% yoy, thanks to better results from MLM segment. MLM segment revenue and PBT escalated 9.6% yoy and 25.2% yoy respectively, leveraged on online sales platform, hefty demand on its newly launched lady wear series as well as encouraging number of new members. Nevertheless, Wholesale segment’s revenue was dampened by lower sales from duty free market in view of lower tourist traffic following restricted movement in relation to curbing Covid-19 pandemic. Meanwhile, Retail segment’s performance was subdued due to lower contribution from CNY sales campaign on the back of lesser consumer demand during re-imposition of MCO 2.0.
   
• Pinning hopes on better outlook but cautious remains. Looking forward, Hai-O is optimistic on their business performance given starting of our nation immunisation programme which could lead to better business growth in the future. Nevertheless, the Group is still cautious on current Covid-19 impact and risk remains before the community reaching full immunity. Also, Hai-O is committed to emphasis on several proactive measures such as enlightening consumer awareness, buying pattern as well as logistic requirement. According to the Group, MLM segment is currently undertaking rebranding exercise through repacking and reformulating of few major products and put in massive effort to recruit new members and retain its active members. Also, Wholesale and Retail segments’ business operations will be further strengthened through e commerce platform such as digital marketing to ensure its sturdy business growth.

Earnings Outlook/Revision

• No change for our FY21F and FY22F earnings forecast.

Valuation & Recommendation

• Maintain HOLD with an unchanged target price of RM2.30. Our target price is based on P/E multiple of 15.9x FY22F EPS of 14.5sen, slightly higher than 3-year historical mean P/E of 14.8x. We deem the stock is fairly valued and share price is well supported by its decent dividend yield of over 4% for FY22F.

• Risks include: 1) Higher-than-expected operating expenses (i.e. higher marketing and branding expenses), 2) Lower-than-expected domestic spending due to higher cost of living, 3) COVID-19 pandemic weighed down overall business Group’s performance.

Source: JF Apex Securities Research - 29 Mar 2021