We are less pessimistic about Beshom Holdings Bhd (Beshom) after our recent meeting with the management. Below are key takeaways from the meeting:

1. Sales Would Start Recovering From FY25 Onwards.

2. Seeking Opportunities for Overseas Market Expansion.

3. Ongoing Rebranding of Retail Outlet.

We trim our earnings forecast by 19.9% for FY24 and raise our earnings forecast for FY25 and FY26 by 6.1% and 5.2% respectively. Maintain Sell with a revised TP of RM0.80/share based on 15x CY24 EPS.

Sales Would Start Recovering From FY25 Onwards

Beshom’s 1HFY24 results performance was disappointing and management attributed this to a mixture of reasons including:

i. Change in consumer spending pattern

The termination of “Buy now, Pay later” payment facility has resulted in members reducing their spendings on big-ticket items (Body Shaping Lingerie, Household, and Cookware) in 1HFY24 and shifted towards small-ticket products (Nutrition Food & Beverage). We understand from management that a new payment facility, which provides a full range of payment options including instalments, will be in place soon to replace the old payment facility. As such, we expect the revenue to pick up from FY25 onwards.

ii. Higher marketing and promotional costs that led to margin erosion

The group faced an overstocking issue due to the unfavourable market conditions before economic reopening. To address this issue, the company implemented attractive marketing and promotional campaigns to clear the old stocks, resulting in a significant margin erosion to 1.2% (-10.9%-pts YoY) for the MLM segment in 1HFY24 compared to the preceding year. Having said that, we anticipate the margin would be back to normalcy as the low-margin inventory has been fully depleted.

Looking forward, we expect 2HFY24 performance to pick up seasonally in conjunction with Lunar Chinese New Year and Hari Raya festivities. Meanwhile, company has expanded its distributor force by 8,000 to 50,000 members in December 2023. Over the long term, we believe Beshom’s competitive edge, manifested in a diverse range of price point and a commitment to health conscious offerings, would regain consumers’ interest. As such, in our FY25 and FY26 forecast, we expect MLM sales per distributor force to increase to c.RM1,210 and c.RM1,331 respectively from estimated RM1,100 in FY24.

Seeking Opportunities for Overseas Market Expansion

Beshom is actively exploring MLM opportunities for overseas market expansion. The group is currently engaging with local members from several countries, including Korea, Arab Saudi, and China for potential MLM business. To create market awareness, Beshom has participated in food exhibitions in these countries to increase exposure of its products. It anticipates that these engagements could result in new orders for the MLM segment by the end of 4QFY24 or 1HFY25.

In our opinion, we believe the overseas expansion plan is still in a preliminary stage, where Beshom is merely doing feasibility studies on these consumer markets. We also believe these are highly challenging markets where return could be narrow due to large number of existing players in the markets.

On-going Rebranding of Retail Outlet

The group has rebranded and renovated one Hai-O chain store (1Utama branch) (Appendix 1) and has planned to renovate another outlet in FY24. The rebranding effort aims to captivate a younger demographic through the revitalisation of its outlets and repackaging its products. Beshom is scheduled to hold a ribbon cutting ceremony for its new outlet on 28 December 2023, coinciding with the launch of 2024 CNY hamper. We anticipate that the rejuvenation program would attract more footfall and translate to retail sales of c.RM36mn and c.RM39mn for FY25 and FY26 (previous forecast RM34mnRM37mn), respectively representing about 21.0% of the group’s total revenue.

Impact

• We trim our FY24 earnings forecast by 19.9% due to the lower-than-expected sales per distributor force. We now forecast FY24 sales per distributor to be c.RM1,100. For FY25 and FY26, we raise our earnings forecast by 6.1% and 5.2% respectively, driven mainly by normalisation of MLM sales.

Valuation

• We reiterate Sell on Beshom with a revised TP of RM0.80/share (from RM0.71) based on 15x CY24 EPS.

Source: TA Research - 28 Dec 2023