Result

• Hai-O registered a net profit of RM8.2m during 4QFY21, which tumbled 20.4% qoq and 17.2% yoy. Meanwhile, revenue declined 0.6% qoq despite soaring 24.4% yoy.

• As for full year FY21, the Group posted a net profit of RM39.1m which improved 19.9% yoy on the back of higher revenue which grew 6.4% yoy. The encouraging results were underpinned by better sales from Multi-LevelMarketing (MLM) and Wholesale segments due to low-base effect for last year pursuant to Covid-19 pandemic.

• Within expectations. FY21’s full year net profit of RM39.1m was within our in-house (account for 94.4% of full year earnings estimates) and market (96.5%) expectations.

• Second interim dividend declared. Hai-O has declared a second single-tier interim dividend of 5sen/share during 4QFY21. As such, total dividend payment for FY21 is 9 sen/share which translates into 4.3% dividend yield. Also, on 4th June 2021, the Group declared share dividend of one (1) treasury share for every twenty-six (26) existing ordinary shares of RM1.00 each for FY22.

Comment

• Sluggish sales from MLM and Wholesale segments weighed on QoQ performance despite stellar result from Retail segment. Hai-O’s revenue was slightly down by 0.6% qoq following disappointing sales from MLM segment (-0.3% qoq) and Wholesale segment (-2.4% qoq) due to higher base in 3QFY21. Nevertheless, sales for Retail segment picked up by +7.4% qoq resulting from Chinese New Year sales as well as year-end members’ sales promotion campaign. Besides, PBT depleted 16.8% qoq given sluggish MLM and Wholesale PBT margin (down 29.2% qoq and 3.6% qoq respectively) due to impairment loss from an associate company amounting to RM1.5m as well as lower A&P subsidy from suppliers.

• Launch of new products for MLM segment coupled with intense sales promotion from Wholesale and Retail segments spurred YoY growth. The Group’s revenue escalated 24.4% yoy on the back of higher PBT margin which soared 4.6% yoy. MLM segment revenue rose 11.6% yoy following higher sales attributable to its newly launched slimming lady wear line as well as sales campaign promotion which took place during this period. Besides, Wholesale and Retail segment also registered stellar results, improving 49.1% yoy and 56.9% yoy respectively, thanks to higher sales of Chinese medicated tonic, premium cooking wine and patented medicine as the Group conducted “lastbuy” sales promotion campaign prior to Chinese New Year festive. Additionally, Retail segment sales growth was buoyed by year end members’ sales promotion campaign amid lower base in the same quarter of the previous year whereby movement control order (MCO) 1.0 took place.

• Stellar FY21. Cumulatively, Hai-O’s 12MFY21 revenue and PBT increased 6.4% yoy and 19.9% yoy, spurred by massive growth in MLM segment (revenue: +10% yoy; PBT: +5.0% yoy) and Wholesale segment (revenue: +3.7% yoy; PBT: +103.2% yoy). Massive growth from MLM segment was largely backed by digital platform (such as social media and e-commerce platforms) during Covid-19 pandemic situation. Also, Wholesale segment was boosted by encouraging sales from Chinese medicated tonic, premium cooking wine and patented medicine. Nevertheless, performance of Retail segment was challenging during FY21 as this segment was largely relied on its brick-and-mortar sales. In conjunction with that, revenue was down 2.5% yoy despite improved PBT margin which rose 3.6ppts.

• Moderating outlook amid current stubbornly high Covid-19 cases. Looking forward, the Group remains cautious on its outlook, which is impacted by Covid-19 that might halt overall business growth. Hai-O is committed to emphasis on several proactive measures and continue to strengthen their position as a premier healthcare player. Additionally, Hai-O is pinning hopes on their business to register resilient growth banking on rollout of our nation immunisation programme which could lead to relaxation of MCO in the near future. Overall, we expect the Group’s business to go through stiff operating environment amid resurgence of Covid-19 cases. We expect growth momentum would be interrupted in 1HFY22 amid continuation of restricted movement (expected till 3QCY21) as well as slow vaccination rollout in our nation.

Earnings Outlook/Revision

• We tweak down our FY22F full year earnings forecast by 7.6% to RM40.3m to account for lower-thanexpected margin and sales. Also, we introduce FY23F net earnings forecast of RM44.4m with 10.2% yoy growth.

Valuation & Recommendation

• Maintain HOLD with a lower target price of RM2.13 (RM2.30 previously) following our earnings downgraded. Our target price is now based on P/E multiple of 15.9x FY22F EPS of 13.4sen (14.5sen previously), slightly higher than average mean PE of 14.6x. 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) perpetual COVID-19 pandemic weighed down overall business performance.

Source: JF Apex Securities Research - 28 Jun 2021