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Friday, January 25, 2013

Hai-O Enterprise Bhd


By HwangDBS Research
Trading Buy
Fair value: RM2.95
THE stock has undemanding valuations with a price earnings (PE) multiple the cheapest among peers.
Hai-O is currently trading at 10.5 times 1-year forward PE, which is cheaper than Zhulian and Amway, which are both trading at 11 times and 17.5 times FY13F PE respectively.
As such, we arrive at a fair value of RM2.95, pegged to 13 times FY13F EPS (25% discount to Amway due to smaller market cap), indicating potential upside of 25% based on current share price.
Hai-O has a dividend payout policy of at least 50% of net profit. Based on FY12F estimated net profit of RM38.9m (excluding RM4.8mil one-off gain from disposal of freehold land) and assuming a 50% payout ratio, this implies a single-tier DPS of 9.9 sen, translating to 4.2% net dividend yield.
The dividend payment is also supported by a strong balance sheet, with the group sitting on a net cash pile of RM118.4mil (or RM0.60/share) as at end-Oct12.
Hai-O's multi-level marketing (MLM) business currently has more than 140,000 registered members and over 40 stockists and branches nationwide. The group's MLM business is mainly targeted at the Malay market, with approximately 80% of its members currently being bumiputras.
This has helped the group's MLM business achieve tremendous growth as the Malay population constitute s67% of Malaysia's total population, with disposable income for the Malay segment expected to grow fastest compared to the Chinese and Indian population.
As of the first half financial year 2013, Hai-O has already achieved a net profit of RM21.6m (+38.5% y-o-y), excluding one-off gain from disposal of freehold land amounting to RM4.8mil, on the back of RM127mil revenue (+18.5% y-o-y).
This is mainly due to stronger performance from its MLM division driven by sales of high-margin foundation garments, series of health food products and a newly-launched health wellness product.
Management has guided that it should be able to post double-digit earnings growth this year and we think the group is well on its way to achieve a strong set of results in FY13.

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