Hai-O’s FY13 results were  in  line  with  consensus  estimates  but  above our forecasts. Its top- and bottomline grew 11.9% and 31%  y-o-y as the MLM  and  wholesale  divisions  recovered.  The  company  proposed  a single-tier final DPS of 8 sen for the quarter under review. We upgrade the  stock  to  a  BUY,  with  a  higher  MYR2.91  FV,  as  we  roll  over  our valuation to FY14.  
 
- Better all round. Hai-O (HAIO)’s revenue and core earnings expanded 11.9%  and  31%  y-o-y  respectively,  largely  supported  by  better performance  from  its  multi-level  marketing  (MLM)  and  wholesale divisions.  The  numbers  did  not  include  a  one-off  compensation  of MYR0.57m  received  by  the  manufacturing  division,  a  MYR4.8m  gain from the disposal of vacant land, and a one-off MYR1.5m cost relating to the  company’s  corporate  social  responsibility  programs.  Meanwhile, revenue  from  the  MLM  segment  rose  18.4%  y-o-y  while  that  in  its wholesale business soared 182% y-o-y. Elsewhere, core earnings were lifted by an EBIT growth of 24% y-o-y in the MLM division and 45% in the wholesale  segment.  Vis-à-vis  the  preceding  quarter,  turnover  and  net profit  rose  4.6%  and  5.5%  respectively,  spurred  by  the  Chinese  New Year festive season.

- Margins  improve.  The  Group’s gross  profit  margin  widened  to  39.4% from  38.2%  y-o-y  while  EBIT  margin  rose  from  20.3%  to  23.7%  due  to encouraging sales. The Group has declared a final single-tier dividend of 8 sen/share, translating into a decent dividend yield of 5.3% for FY13.  

- Upgrade  to  BUY.  The  MLM  division  will  focus  on  new  product developments,  effective  product  training  for  distributors,  as  well  as growing its membership base.  The  wholesale segment, meanwhile, has secured  exclusive  agency  rights  for  a  number  of  Chinese  medicated tonic products and will roll out advertising & promotion programs to boost sales. HAIO is also re-examining its product portfolio and refurbishing its existing  outlets  to  strengthen the  retail  division. We  are  lifting  our  FY14 forecast by 16% on better showing at its MLM and wholesale segments. We  also  raise  our  FV  to  MYR2.91  as  we  roll  over  our  valuation  from FY13 to FY14, based on 12x FY14 EPS. Upgrade to BUY.

Source: RHB