We came away from a meeting with Beshom Holdings Bhd (Beshom) recently with the following key takeaways:

1. MLM Business is Gradually Improving from its Bottom

2. Ongoing Store Facelifts to Attract More Footfalls

3. Benefits of a Stronger Ringgit

We hold a cautiously optimistic outlook for FY25, expecting gradual improvements across all business segments, especially in the MLM division. Consequently, we anticipate that the appreciation of the Ringgit will lead to cost savings from reduced raw material expenses. At this time, there are no changes to our FY24-26F earnings estimates. We maintain our Hold recommendation on the stock with an unchanged target price of RM0.96 per share, based on a 15x CY25 EPS valuation.

MLM Business is Gradually Improving from Its Bottom

In 1QFY25, EBIT for the MLM division skyrocketed over fourfold quarter-onquarter to RM1.3mn, resulting in an EBIT margin of 10.4% (+7.6 points QoQ). This improvement was primarily due to a recovery in margins after the depletion of discounted inventory and increased demand driven by effective marketing strategies. In previous quarters, the MLM business consistently underperformed as the group implemented various promotional efforts to clear excess inventory, which led to margin erosion into the low single digits over the preceding four quarters.

Going forward, the group plans to implement a new marketing strategy that includes offering additional incentives for ranking promotions, reducing membership fees from RM40 to RM10 to attract new members, and conducting leadership development programs to enhance distributors’ product knowledge. As a result, the group expects to onboard an additional 12,000 new distributors in FY25 (FY24: 42,700 MLM distributors) and convert new members into productive contributors.

To enhance its product portfolio, the group has launched new offerings in the food and beverages (F&B) and wellness categories, including Min Kaffe Cappuccino, Min Kaffe Mocha, and functional innerwear under body-shaping lingerie. Additionally, Beshom has introduced an easy payment scheme, such as “Buy Now, Pay Later,” to facilitate discretionary spending and make big-ticket items more affordable. As a result, we project FY25 MLM segment revenue to grow by 27.8% to RM66.6mn, as we believe FY25 marks a turning point from its lowest point. This projection is supported by: i) an increase in minimum wages, which will boost discretionary spending, ii) a net increase of 12.0k new members, and iii) greater contributions from productive members.

Ongoing Store Facelifts to Attract Higher Footfalls

Following the successful renovation of its Hai-O chain store at One Utama shopping centre, the group has decided to renovate another outlet in Bandar Puteri Puchong. The upgrades at the Puchong outlet are expected to be completed by the end of 2024, typically taking about two months. For FY25 and FY26, we estimate the retail segment’s revenue to improve by 3.9%/8.7% YoY, respectively, driven by increased foot traffic and an expanded customer base.

We believe that the ongoing store facelift efforts will continue to attract more foot traffic and capture a younger demographic. Consequently, the group aims to open at least one additional outlet by FY25 to expand its geographical reach. Specific details about the new location have not yet been disclosed, as the group is currently assessing the feasibility of potential store sites.

Benefits of a Stronger Ringgit

Currently, the group offers over 2,000 SKUs across all segments (MLM, wholesale, and retail). Approximately 51.0% of total procurement is sourced locally, while the remainder comes from foreign suppliers. Raw materials constitute the largest expense, accounting for 40% of the total cost of sales. According to management, 60% of raw material costs are denominated in USD, while the remaining 40% is in CNY. Based on our estimates, a 5% appreciation of the Ringgit would result in a 1.0% increase in net earnings for FY25 due to lower input costs.

Impact

We made no changes to our earnings forecasts for FY24-26.

Valuation

We reiterate our Hold recommendation on Beshom with an unchanged TP of RM0.96/share based on 15x CY25 EPS.

Source: TA Research - 1 Nov 2024