Although weaker consumer spending and the falling ringgit will affect earnings, HaiO should be able to maintain higher than market average yields on the back of its strong balance sheet. It is also trading at comparatively undemanding valuations.
The company sells a wide range of Traditional Chinese Medicines – it has exclusive rights to import over 200 Chinese medicated tonic, tea and precious herbs products from China – and healthcare products mainly via MLM as well as wholesale and retail. MLM accounted for roughly 60% of revenue in FYApril2014.
Outlook for the local MLM industry is expected to be challenging in view of rising cost of living and weaker consumer sentiment, which will result in lower spending. Cost of imported products will also increase with the weaker ringgit. For 1HFy2015, Haio’s revenue and net profit declined by 10.6% and 30.6% year on year to rm107.5 million and rm13.4 million respectively.
Moving forward, HaiO intends to launch more affordable small ticket items to boost sales, carry out more sales and promotion activities, and recruit new members to expand its market reach.
Positively HaiO has a solid balance sheet. It has marginal borrowings and net cash of rm104.3 million or equivalent to about rm0.535 per share.
The company has a minimum 50% dividend payout policy.
It has been buying back its shares since 2003 – treasury shares now (March 2015) stand at about 3.5% of total shares issued.
It is trading at a trailing 12 month PER of 13.4 times and 1.88 times book value. By comparison Amway and Zhulian are trading at historical PER of around 19 to 20 times.
Its net margin and ROE for FY2014 were 15.9% and 16.3% respectively.
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