HAIO – Fundamental Analysis (17 Dec 2015)

Fundamental Analysis as of FY15

Excel – http://1drv.ms/1Jdk4TV

Latest Financial – Q2 2016 Financial Report (16 Dec 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4952529

Peer Comparison

FY16 Q2 Results Highlight:

  • Hai-O’s 2QFY16 net profit was recorded at RM8.9mill, which increased 34.9% qoq and 24.7% yoy. Similarly, quarterly revenue posted a positive growth of 32.9% qoq and 27.5% yoy.
  • For 1H2016, net profit was registered at RM15.6mill, increased by 16.2% y-o-y. Meanwhile, revenue expanded by 20% y-o-y to RM129mill.
  • Another quarterly improvement of MLM division.
    • The  revenue and pre-tax profit increased by 36.5% and 23.3% to RM 82.3 million and RM 13.8 million respectively as compared  to the preceding year’s corresponding period. Since the introduction of several new “small ticket” items two years ago, the marketing strategy initiated by the company to strive more balance of  “small ticket” and “big ticket” items started bearing fruits which had contributed positively to its performance. With the intensive recruitment and member retention programs in-place, the division has successfully attracted more young entrepreneurs to participate in MLM business. Thus, the increase in new members’ recruitment by over 40% had contributed additional sales to the division.
  • Wholesale division snapped back in 2QFY16.
    • Wholesale segment’s PBT posted a positive yoy growth aided by higher sales generated from Chinese medicated tonic coupled with the increase in inter-segment sales contribution. Meanwhile, for 1HFY16, the division’s PBT increased by 3% yoy. The positive performance was due to the same reason.
  • Retail division made a comeback.
    • The division maintained its revenue at about RM 17.1 million with lower pre-tax profit  from RM 1.0 million to RM 0.6 million, this  was mainly due to higher one-off personnel costs rewarded to staff in commemoration of Hai-O’s 40th year Anniversary in first half of the financial year and higher  business operating costs. The continuous support from Hai-O members had enabled the division to maintain its sales volume despite the weakening of domestic purchasing power of consumers.
  • Declared an interim single tier dividend of 4 sen per share in respect of the financial year ending 30 April 2016

Valuation:

  • In my opinion, fair value of HAIO range from 2.5 to 2.9 (Uncertainty Risk: MEDIUM).
  • For more details, you can refer to my excel.

HAIO-FY16-Q2-Football-Field

Going Forward:

  • Weakening of MYR against USD currency will increase the cost of import purchases.
  • Weakening domestic purchasing power and high costs of living, resulting consumers more cautious in spending.
  • MLM division continues to shine whilst retail and wholesale divisions are in the midst of recovery. Going forward, we envisage that MLM division will continue to sustain its stellar performance attributable to the positive response for the promotion of its “small ticket” items coupled with the Group’s continuous effort to enhance its product mix, expand marketing channel as well as actively recruiting new MLM members.
  • The wholesale and retail divisions are expected to grow moderately as the Group plans to look for new agency line to widen its products portfolio with competitive selling prices. Retail division will be banking on the look-out for high traffic locations for opening of new outlets and refurbishing existing outlets to improve outlet image. In conjunction of Chinese New Year festive season, the wholesale and retail divisions will carry out CNY promotion and hence it will further lift the revenue. In addition, the Group will continue to improve its networking through social media to promote its products and expand its customer base locally and regionally.
  • Despite the current slump in its earnings, coupled with the possibility of longer-than-expected effect from the strategy shift, HAIO’s attractive dividend will be the main catalyst for the stock.
  • I will continue to hold and accumulate HAIO as I believe that HAIO has the ability to overcome the challenges ahead.

At the time of writing, I owned shares of HAIO.

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