Period     4Q13/FY13

Actual vs.  Expectations   The FY13 net profit (NP) of RM47.4m came in slightly above the street’s estimate of RM43.9m by 8%. However, it was on the dot of our forecast of RM47.3m.

Dividends    Hai-O has proposed a final single-tier interim dividend of 8 sen for FY13, which was higher than last year’s 7 sen and brought the full-year total DPS to 14 sen. The total DPS was 10.8% higher than our forecast of 12.6 sen, implying an attractive yield of 5.3%.

Key Result Highlights   QoQ, the 4Q13 revenue edged higher by 2.9%, which was mainly driven by the improved sales from its retail division (+25% QoQ) due to the festive season. The PBT also improved from RM13m to RM15m, which we believe was mainly contributed by a 14% QoQ jump in the PBT of its multi-level marketing (MLM) segment.   

YoY, the 4Q13 revenue and PBT rose by about 4% and 7% to RM72m and RM15m respectively. The earnings improvement was mainly buoyed by the rise in the MLM and wholesale segments by 14% and 16% respectively. 

For the YTD,  the FY13 revenue registered double-digit growth of 12%. As expected, this was mainly driven by the MLM segment, which recorded a YoY growth of 18%. The better performance was mainly attributable to a sterling membership growth of 15% YoY. This led to higher sales of food and beverage consumable products, wellness and personal care products. Moreover, one of the newly launched products has received a good response and made up 14% of the total revenue of the MLM division as compared to only 5% in 9M13. The PBT and NP moved in line with the revenue and registered admirable YoY growth rates of 31% and 39% respectively. The substantial growth was boosted by the higher PBT numbers of the MLM (+24% YoY) and wholesale (+45% YoY) segments. In addition, its other division also showed a significant improvement, where the PBT increased by two-fold buoyed mainly by the gain on disposal of a freehold vacant land worth RM4.8m and additional contributions from the manufacturing division.  

Outlook    We remain positive on Hai-O’s prospect going forward as we anticipate its MLM segment to continue to deliver a decent earnings growth from a lower base through its continuous effort to enhance its product mix and expand new market channels through the recruitment of more new members.

Change to Forecasts    Due to the low base effect of its MLM segment, we have revised up our FY14E NP estimates by +5% to RM52.2m (from RM49.6m) on the back of a higher membership growth of 12% (vs. previous 6.6%). We are also introducing our FY15E earnings of RM57.1m, representing a 9.5% YoY growth.

Rating  Maintain OUTPERFORM

Valuation    In line with the revision of the earnings, we are upgrading our TP to RM3.00 (from RM2.90) based on an unchanged PER of 11.8x over FY14E EPS of 25.8 sen (24.5 previously).

Risks    A slowdown in the global economy, which will cut the purchasing power of consumers.

Source: Kenanga