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Thursday, June 28, 2018

Hai-O 'buy', Sime Darby 'buy', Sunway Bhd 'market perform'

Thursday, 28 Jun 2018
by analyst reports


By Affin Hwang Capital Research

Buy (maintained)

Target price: RM6.10

Hai-O’s net profit in the financial year of 2018 (FY18) came in slightly below Affin Hwang Capital Research’s and consensus expectations, even as it surged 25.8% year-on-year (y-o-y) to RM74.8mil.

The latest full-year results made up 89% and 87% of Affin Hwang Capital Research’s and consensus forecasts respectively due to Hai-O’s weaker performance in the fourth quarter of FY18 (Q4FY18).

According to the research house, Hai-O’s lower earnings in the fourth quarter was dragged down by a slowdown in activities in the multi-level marketing (MLM) business ahead of the 14th general election (GE14).

“Weaker contribution from the MLM division contributed to the 11.9% y-o-y drop in net profit, with the division accounting for about 76% of total revenue.

“The MLM division was affected by a slowdown in activities prior to GE14, due to members turning more cautious in the lead-up to it.

“Furthermore, the deadline for the incentive trip for 2018 was extended till May.

“Thus, we expect a spike in sales activity to be reflected only in the first quarter of fiscal 2019.

“The wholesale and retail divisions, on the other hand, provided some respite with revenue growing by 35% and 46% respectively,” it said in a note.

However, Affin Hwang Capital Research expects the fourth quarter lower earnings to be temporary blip.

This is because the results of subsequent quarters are forecast to improve on the back of improving consumer sentiments post-GE14 and the extension of the deadline for Hai-O’s incentive trip this year.

“Despite FY18 earnings falling behind expectations, we maintain our FY19-20 earnings forecasts and introduce our FY21 forecasts.

“In addition to the improving consumer sentiment, we believe the new lifestyle and fashion wear products will contribute positively in the subsequent quarters.

“Key risks to our call are the loss of distributors in the MLM division, lack of new exciting products to enhance growth and weakness in the wholesale and retail divisions,” the research firm said.

Affin Hwang Capital Research reiterated its “buy” call on Hai-O.

But the brokerage lowered its target price on the stock to RM6.10 from RM6.44 previously.


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