HAIO  has  picked  itself  up  from  the  net  profit  plunge  in  FY11  and regained  its  earnings  momentum.  We  believe  its  strategy  of  recruiting members  aggressively  and  shifting  its  product  mix  from  one-off,  big-ticket items to recurring small-ticket ones will put it on the right track to deliver satisfactory results in the future. Maintain BUY, with a new FV of MYR3.28.  

- MLM  bullish  once  more.  Hai-O (HAIO)’s multi-level  marketing  (MLM) sales  and  profitability  took  a  plunge  in  FY11,  mainly  due  to  slower membership  growth  after  the  Company  tightened  its  rules  and procedures – relating to purchasing and other documentation – in order to  comply  with  industry  regulations  introduced  in  2010.  Consequently, MLM FY11 sales and EBIT plummeted to MYR125.2m and MYR22.3m, from  RM418.1m  and  MYR75.3m  respectively  in  FY10.  It  has  since adopted  more  proactive  measures  to  attract  new  members/distributors and  improve  its  performance.  The  Company  also  shifted  its  focus  from big-ticket  items,  such  as  water  filters,  to  consumer-centric  products  like beauty and health products, of which sales have been largely `consistent and recurring in nature.

- Enlarging member base. As HAIO has 140,000 registered members, of which  ~80%  are  Bumiputera,  it  is  planning  to  introduce  new  products that appeal to non-Bumiputera users (ie Chinese and Indians) in order to capture the relatively untouched market. The Company will also continue to launch five to eight new products each year.  

- Dividend yield at >5%. HAIO has been paying out more than 50% of its net profit as dividends over the last five years. We are anticipating a 15 sen  and  17  sen  DPS  for  FY14  and  FY15  respectively,  which  translates into a decent dividend yield of >5% at the current share price level.

- Maintain  BUY.  In  view  of  better  sales  and  fatter  margins  coming  from the  MLM  segment,  we  nudge  our  FY14  and  FY15  numbers  up  by  4% and 6.6% respectively. Since HAIO’s performance have been improving on the back of stronger MLM earnings, we reiterate our positive view on the  stock,  especially  as  it  comes  with  a  decent  dividend  yield  of  >5%. Maintain BUY with a higher FV of MYR3.28, based on 12x CY14 EPS.

Source: RHB