MLM division rebounds. Hai-O's full-year results were within consensus estimates but 7.8% above our forecast, as its topline and core net profit (excluding a one-off RM0.8m gain from disposal of vintage tea) jumped 7.2% and 16.2% y-o-y respectively. The stronger revenue growth was mainly contributed by higher sales from the MLM division (+12.7%), which made up 59% of the group's total revenue. Vis-''-vis 3QFY12, the company's revenue and core net profit came in at RM69.4m and RM8.4m.

Good showing from all divisions. The MLM division's earnings went up by 7.2%, thanks to proactive strategies to attract new members and distributors, coupled with higher repeat sales from existing members. We reiterate our view that the growth momentum in the MLM division should be sustainable given the improved marketing strategy and balanced product mix. In the wholesale division (revenue: -5.6% y-o-y), the better sales from patented medicine and goods supplied to duty-free shops plus the one-off gain from the disposal of some vintage tea products mitigated the lower revenue from Chinese Medicated Tonic. Nonetheless, PBT in the wholesale division surged 27% due to higher inter-segment sales and sales of higher margin products. On the other hand, the retail division's revenue was relatively flat (+2% y-o-y) due to the company's outlet rationalization involving two unprofitable outlets and the opening of seven new outlets. This division's PBT rose 7.6% mainly due to higher sales of house-brand products.

Better margin. EBIT margin expanded by 1.5% to 19.9%, mainly attributed to: i) better sales from MLM division, ii) higher margins from wholesale products, and iii) higher rental income from renewal of tenancy agreements of existing investment properties and lower research costs. The company has proposed a final single tier dividend of 7 sen, translating into a decent dividend yield of 4.3%.

Maintain NEUTRAL. We remain optimistic on the recovery of MLM division as it continues to introduce new products, implement effective sales campaigns and recruit new members. In view of the better-than-expected results, we are raising our FY13 forecasts by 6.5%. Maintain Neutral, with a higher FV of RM2.16.

Source: OSK