Period

1Q16

Actual vs. Expectations

The 1Q16 net profit of RM6.6m is considered broadly within expectations, matching 21.1% of our full-year forecast and 20.2% of the street’s.

Dividends

None, as expected.

Key Results Highlights

YoY, 1Q16 revenue grew 11.2% to RM55.4m thanks to strong performance in MLM division (+29.4%) as the strategy of focusing in ‘smallticket’ items bore fruits. However, the wholesale division sale recorded a decline of 21.5% due to the weak consumer sentiment and GST implementation. Operating profit increased by 6.2% to RM8.7m due to the strong performance in MLM division. As a result, a result, net profit grew 6.5% to RM6.6m.

QoQ, 1Q16 revenue slid 21.4% to RM55.4m largely due to the swing in sales of the wholesale division as customers stocked up in anticipation of GST implementation. Sale was also weaker in the MLM division due to the Ramadhan fasting month as well as the incentive trip promotion campaign that boosted sales in 4Q15. As a result, net profit fell 29.5% to RM6.6m due to the higher base effect in the previous quarter.

Outlook

Outlook remains challenging with the biggest concern being the wholesales division due to the strong USD against MYR. With the USD remaining strong, the Group might face difficulty in sustaining profits in this division.

The strategy of realigning the sales focus towards ‘small-ticket’ items has gained traction with such items now contributing >60% over total sales while the revenue growth momentum was also seen to be picking up. However, we remain cautious as we foresee limited growth in the MLM division in view of the weak local consumer sentiment.

Overall, we still maintain our negative stance on HAIO despite the improving MLM division’s performance in view of the pedestrian growth forecasted for the next two years (4% and 7.3%) and the risk in the wholesale division.

Change to Forecasts

No changes to our earnings forecasts.

Rating

Maintain UNDERPERFORM

Valuation

Our Target Price was upgraded to RM2.22 from RM2.00 after we roll over our valuation to FY17E. TP is based on unchanged 12.9x PER, which is below its 5-year mean.

Risks

Stronger-than-expected MYR recovery against USD.

Sector risk: Better-than-expected consumer sentiment.

Source: Kenanga Research - 25 Sep 2015