HAIO – Fundamental Analysis (11 Apr 2016)

Fundamental Analysis as of FY15

Excel – https://onedrive.live.com/redir?resid=D96B5F401BDB2A62!79324&authkey=!AMThlAgThTIS7pE&ithint=file%2cxlsx

Latest Financial – Q3 2016 Financial Report (18 Mar 2016) http://www.bursamalaysia.com/market/listed-companies/company-announcements/5034901

Peer Comparison

FY16 Q2 Results Highlight:

  • Hai-O’s 3QFY16 net profit was recorded at RM9.7mill, which increased 9.4% qoq and 33.9% yoy. Similarly, quarterly revenue posted a positive growth of 9.4% qoq and 29.9% yoy.
  • For 9M2016, net profit was registered at RM25.1mill, increased by 21.6% y-o-y. Meanwhile, revenue expanded by 23.6% y-o-y to RM209.5mill.
  • Improvement of MLM division.
    • The main contributor to profit improvement is the switch in sales strategy whereby the Group focused more on ‘small-ticket items’, which is now contributing 70% of the total sales (from 30% a year ago). Meanwhile, new recruitments were encouraging with latest active distributors of 70k representing a jump of 32% from 57k in FY15 due to its successful recruitment program targeting young Bumiputra group. Moving forward, management is confident that the momentum can be sustained with younger generation of distributors joining the force vying for extra income in amidst of the challenging economy and job market.
  • Cautious on wholesale and retail segments. Despite the wholesale and retail divisions growing 45% and 127%, respectively, as of 9M16, management is maintaining a conservative stance as both divisions are vulnerable to weak consumer sentiment and attributed the strong performance to seasonality factor. The strengthening of MYR bodes well for the Group as most of the products in its wholesale division are imported and a 10% appreciation in the local currency will boost its net profit by RM2m-RM3m or 5%-8% of FY17E net profit. The operating environment for retail segment remains challenging with no expansion plan, but the Group is not scaling down this division as it complements other segments.

Valuation:

  • In my opinion, fair value of HAIO range from 2.5 to 3.2 (Uncertainty Risk: LOW to HIGH).
  • For more details, you can refer to my excel.

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, 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.
  • 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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