Key takeaways from our recent engagement with Beshom’s management are as follows: i) review of 1HFY25 results; ii) expectations that 2HFY25 would be driven by festive spending; and iii) recovery in the MLM division. We remain cautiously optimistic on Beshom’s FY25 outlook, anticipating a recovery in MLM division. Meanwhile, festive spending should enhance the wholesale and retail divisions. We maintain Sell with an unchanged TP of RM0.84/share, based on a 15x CY25 EPS.

1HFY25 Result Review

To recap, Beshom 1HFY25’s revenue increased by 2.2% YoY to RM74.4mn, backed by a strong 8.1% YoY sales growth in the multi-level-marketing (MLM) division. However, weaker sales performance in the wholesale (-2.3% YoY) and retail (-0.2% YoY) segments partially offset the MLM division’s growth. The growth in MLM division was mainly due to the successful sales campaign of PB Thera series products (big-ticket item). As a result, the MLM segment achieved an EBIT of RM2.8mn, leading to an improved EBIT margin of 10.0% in 1HFY25.

Consequently, 1HFY25 net profit declined by 4.5% YoY attributed to higher sales cost of RM45.6mn (+5.7% YoY). Going forward, we expect 2HFY25 performance to improve, buoyed by higher festive spending and effective cost management.

Expectation That 2HFY25 Would be Driven by Festive Spending

Moving into 3QFY25, we expect Beshom’s sales to improve, driven by strong performance in both the wholesale and retail divisions. Management plans to leverage the upcoming Chinese New Year to roll out promotional campaigns. Additionally, we expect higher discretionary spending and resilient domestic spending in 2025. Overall, we anticipate the group’s revenue to grow by 4.8% YoY, reaching RM158.0mn in FY25, reversing three consecutive years of negative sales growth since FY22.

Based on the past three years of historical performances during the CNY period, the group posted better QoQ results in 3QFY22 and 3QFY24, with sales growing by 7% and 11%, respectively. In contrast, 3QFY23 experienced a marginal QoQ sales decline of 3%, primarily due to weaker sales in the MLM division (-35.3% QoQ). However, both the wholesale and retail segments posted strong double-digit QoQ growth of 20.2% and 35.3%, respectively, in 3QFY23, fuelled by seasonal sales of hampers and Chinese medicated tonic during CNY festive season campaign.

Recovery in the MLM Division

In 1HFY25, MLM segmental EBIT surged over 9-fold YoY to RM2.8mn, resulting in an EBIT margin of 10% (+8.0%-pts). The improvement was mainly due to the depletion of discounted inventory and a recovery in demand. Beshom has also regularly reviewed its marketing strategy, lowering its membership fee to RM10, launching targeted products promotions and offering additional incentives for ranking promotions to enhance members recruitment and retention.

For FY25, management aims to attract 1,000 new members per month, targeting a net increase of 12,000 new distributors to a total number of 54,700 members. Going forward, we expect the MLM division’s revenue to grow by 10.3% YoY to RM57.4mn in FY25 driven by i) an increase in disposable income among Malaysia citizens, which could boost discretionary spending, ii) the expansion of product offerings to meet diverse consumer needs and iii) improved contributions from both new and existing members.

Impact

No Change to Our Earnings Projections for FY25-27F.

Valuation

We valued Beshom at an unchanged TP of RM0.84/share, based on 15x CY25 EPS. Maintained Sell.

Source: TA Research - 26 Dec 2024