Hai-O’s 9MFY13 results were largely in line with consensus and our estimates. Its MLM division continued to support both its top- and bottom-line growth, affirming our view that the company’s recovery is indeed on track. Maintain NEUTRAL with its FV unchanged at RM2.35, based on 12x FY13 EPS.

Decent performance. Hai-O’s revenue and core earnings (excluding a one-off compensation of RM0.57m received by the manufacturing division and a RM4.8m gain from disposal of vacant land) improved by 15.2% and 31.6% yo-y respectively, largely supported by a stronger showing from its multi-level marketing (MLM) and wholesale divisions. Compared to the preceding quarter, Hai-O’s sales grew by 4.6% while earnings contracted by 2.7%. This was mainly due to extensive A&P incurred pre-Chinese New Year and higher operating costs.

MLM on track. The MLM division charted higher revenue and PBT of RM121m (+27.4% y-o-y) and RM22m (+29.4% y-o-y) respectively, due to: i) better sales of foundation garments, health food and wellness products, ii) good response to its newly-launched products, iii) higher revenue from its F&B consumables, and iv) a growth of 27% in its membership base. Meanwhile, the company’s wholesale division saw topline expanding by 6% on the back of stronger sales of Chinese health foods, medicated tonics and patented medicine products. The performance of its retail division, however, was disappointing. The unit’s revenue and PBT slipped by 9% and 40% respectively, no thanks to higher A&P cost. Overall, the company’s EBIT margin normalised from 39.1% to 36.9% y-o-y.

Maintain NEUTRAL. We are leaving our numbers unchanged as we expect margins to normalise in the next quarter. Maintain NEUTRAL, with a FV of RM2.35.

Source: RHB