Beshom Holdings Berhad

A Weaker Start for FY24

Review

• Beshom Holdings Bhd’s (BESHOM) 1QFY24 core earnings of RM2.6mn disappointed ours and market’s forecasts, accounting for 12% of our and 13.5% of consensus’ full-year forecasts. The negative variance was largely underpinned by the weakened consumer sentiment and lower demand towards non-essential goods.

• No dividend was declared for the quarter under review.

• YoY, the 1QFY24 revenue declined by 27.1% to RM35.2mn due to weaker demand for health supplement goods. Consequently, the group’s adjusted EBIT fell to RM3.5mn (-55.5% YoY), exacerbated by higher opex (i.e., the marketing and administration cost.

• MLM. Notwithstanding the lingering marketing efforts, the sales momentum and the recruitment were severely dampened amidst the challenging economic conditions that affect the consumer sentiment and purchasing power. Notably, the conversion of casual employment term by some disheartened members is anticipated to decelerate the sales momentum even further. As a result, the MLM segment registered a revenue of RM12.4mn (-42.2% YoY) and EBIT of RM0.4mn (-87.0% YoY).

• Wholesale. The segmental revenue fell to RM 14.3mn (-16.1% YoY), largely attributed to high base effect, which was boosted by promotion sales on certain Chinese medicated products and cooking wines. In tandem with lower revenue coupled with sluggish sales of higher margin items, the segmental EBIT slid to RM2.1mn (-63.6% YoY).

• Retail. A lower revenue of RM7mn (-19.6% YoY) was posted, owing to poor demand towards the house brand products and health supplement goods in the endemic phase. The profit margin was further eroded by higher administrative cost arising from rental and lower A&P subsidy coupled with rising personnel cost in pursuant to the new minimum wage bill effective early this year, resulting in LBIT of RM0.4mn (-167.1% YoY).

Impact

• We cut our FY24/FY25/FY26 earnings forecasts by 31.2%/35.4%/32.0% respectively, as a results of challenges and dampened outlook across the board.

Outlook

• MLM. BESHOM’s MLM segmental outlook is anticipated to be clouded by dampened consumer spending in view of the rising cost of living and therefore demand is likely to remain muted. Meanwhile, we hold a cautious view regarding the MLM space due to its weakened member forces and consumption.

• Wholesale. We expect that the wholesale segment’s turnover should maintain status quo in the next quarter since the sales peak usually occurred in Q3, thanks to CNY festive sales.

• Retail. The sales outlook for the retail segment is projected to stay sluggish due to decreased foot traffic and declining demand for premium supplement products. Furthermore, we deduced that customers may seek for more cost-saving alternatives on other platforms, potentially exacerbating the slowdown in segmental sales growth.

Valuation

• Maintain Sell with a revised target price of RM0.71/share (previously RM0.96/share) based on 13x CY24 EPS.

Source: TA Research - 29 Sept 2023