We gather from our visit to Hai-O last week that its MLM division is on track for recovery, mainly driven by an improved marketing strategy and a more balanced product mix. With its new tie-up in bamboo salt distribution, the potentialresumption of bird’s nest exports and its Chinese medical centre coming on-stream, the company may be poised for strong expansion. Maintain NEUTRAL, with a FV of RM2.16, based on a 12x FY13 EPS.
MLM bounces back. As we highlighted in our previous updates on Hai-O, the multi-level marketing (MLM) division picked up gradually in the last financial year. The better FY12 core net profit was boosted by the encouraging 7.2% y-o-y earnings growth from
the MLM division, backed by aggressive strategies to recruit new members and distributors. In Hai-O‟s latest financial quarter, the MLM business delivered strong turnover (+39.3% y-o-y) and earnings (+68.2% y-o-y) growth, bolstered by better demand for its high-margin foundation garments and health food products. The division has around 140,000 registered members, with around 2,500 new members coming on board each month. We believe that this division‟s growth momentum is sustainable in view of the company‟s improved marketing strategy and more balanced product mix.
New collaborations to spice things up. Aside from its global distributorship agreement with South Korea‟s KAEAM Food Corp to market „bamboo salt‟ (garam buloh) in early April, Hai-O has also formed a joint venture with a local partner, Yan Zhi Enterprise SB, to set up a new subsidiary Yan Ou Holdings SB (Yan Ou). This unit will source, process, trade and distribute bird‟s nests and related products. In July last year, China - the main importer of bird‟s nest - banned Malaysia‟s bird‟s nest exports due to the purportedly high levels of nitrates. The Malaysian Government hopes to iron out the issue and resume exports of bird‟s nest to China in December. Assuming that this makes good progress, we believe the collaboration will provide Hai-O a good opportunity since the Asian bird‟s nest market, especially in China, is highly lucrative. Some 250 tonnes of Malaysian bird‟s nests were exported to China before the ban. Together with Tong Ren Tang Chinese Medicine (Tong Ren Tang CM), the group plans to inject RM31m more into Peking Tong Ren Tang (M) SB (PTRT) for the purpose of establishing a “Beijing Tong Ren Tang (M) Chinese Medicine Healthcare and Wellness Centre.”
Maintain NEUTRAL. Given the MLM recovery and the promising tie-ups, we expect Hai-O to possibly deliver decent future performance. Nonetheless, we maintain NEUTRAL, with our FV unchanged at RM2.16, due to the limited upside to the current share price level.
MLM bounces back. As we highlighted in our previous updates on Hai-O, the multi-level marketing (MLM) division picked up gradually in the last financial year. The better FY12 core net profit was boosted by the encouraging 7.2% y-o-y earnings growth from
the MLM division, backed by aggressive strategies to recruit new members and distributors. In Hai-O‟s latest financial quarter, the MLM business delivered strong turnover (+39.3% y-o-y) and earnings (+68.2% y-o-y) growth, bolstered by better demand for its high-margin foundation garments and health food products. The division has around 140,000 registered members, with around 2,500 new members coming on board each month. We believe that this division‟s growth momentum is sustainable in view of the company‟s improved marketing strategy and more balanced product mix.
New collaborations to spice things up. Aside from its global distributorship agreement with South Korea‟s KAEAM Food Corp to market „bamboo salt‟ (garam buloh) in early April, Hai-O has also formed a joint venture with a local partner, Yan Zhi Enterprise SB, to set up a new subsidiary Yan Ou Holdings SB (Yan Ou). This unit will source, process, trade and distribute bird‟s nests and related products. In July last year, China - the main importer of bird‟s nest - banned Malaysia‟s bird‟s nest exports due to the purportedly high levels of nitrates. The Malaysian Government hopes to iron out the issue and resume exports of bird‟s nest to China in December. Assuming that this makes good progress, we believe the collaboration will provide Hai-O a good opportunity since the Asian bird‟s nest market, especially in China, is highly lucrative. Some 250 tonnes of Malaysian bird‟s nests were exported to China before the ban. Together with Tong Ren Tang Chinese Medicine (Tong Ren Tang CM), the group plans to inject RM31m more into Peking Tong Ren Tang (M) SB (PTRT) for the purpose of establishing a “Beijing Tong Ren Tang (M) Chinese Medicine Healthcare and Wellness Centre.”
Maintain NEUTRAL. Given the MLM recovery and the promising tie-ups, we expect Hai-O to possibly deliver decent future performance. Nonetheless, we maintain NEUTRAL, with our FV unchanged at RM2.16, due to the limited upside to the current share price level.
Source: OSK
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