Review

• Beshom Holdings Bhd’s (Beshom) 1HFY23 core earnings of RM9.2mn missed expectations, coming in at 27% of our and 25% of consensus’ fullyear estimates. The underperformance was due to poorer-than-expected result in the multi-level marketing (MLM) division. For this quarter, the company declared a first interim dividend of 3sen/share.

• Revenue for 1HFY23 slid 12.0% YoY to RM92.3mn, mainly due to poorer sales in the MLM division. In tandem with the lower revenue and higher marketing costs for MLM division, adjusted PBT plunged 33.4% YoY to RM13.4mn.

• MLM. Members’ ability to spend was adversely impacted by rising cost of living while recruitment and renewal of members were also less encouraging. Consequently, segmental revenue in 2QFY23 plunged 42.0% YoY to RM20.6mn. Additionally, higher marketing expense to instil confidence among distributors led to EBIT margin compression (11.6% in 2QFY23 vs 20.0% in 2QFY22). Correspondingly, segmental EBIT slipped 66.3% YoY to RM2.4mn.

• Wholesale. The quarterly revenue advanced 11.7% YoY attributed to higher sales of Chinese medicated tonic as well as sales to duty free shop following the resumption of tourism activities. However, EBIT for 2QFY23 slid 7.6% YoY and we attribute this to rise in cost of sales. QoQ, revenue fell 24.8% as sales in 1QFY23 was buoyed by pre-price increase “last-buy” sales promotion. As a result, division’s EBIT plunged 67.2% QoQ.

• Retail. 2QFY23 revenue surged 21.5% YoY due to low base effect a year earlier from National Recovery Plan, leading to a 26.2% YoY growth in EBIT. Compared with 1QFY23, revenue for 2QFY23 increased 10.1% QoQ driven by half yearly members’ grand sales promotion. Segmental EBIT soared 50.5% QoQ as a result of the revenue growth.

Impact

We trim our earnings forecast for FY23/FY24/FY25 by 15.9%/6.9%/1.7% respectively, forecasting a lower distributor force and higher marketing costs.

Outlook

• MLM. The division continues to disappoint due to weak purchasing power amidst high inflation. Following the resumption of overseas incentive trip and step up in physical event, we expect the division to register a gradual increase in number of distributors and average revenue per distributor.

• Wholesale. As expected, sales growth normalised QoQ in 2QFY23 after the boost in sales prior to price hike last quarter. We expect the division to register better sales growth QoQ in 3QFY23 driven by Chinese New Year (CNY) promotional campaign.

• Retail. Similar as the Wholesale division, we expect Retail division’s sales to be boosted in 3QFY23 by CNY Sales.

Valuation

• Downgrade to Sell with a revised target price of RM1.28/share (from RM1.46/share previously) based on 11x CY23 EPS.

Source: TA Research - 22 Dec 2022