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Friday, August 10, 2018

Hai-O likely to experience tapering off in distributorship growth

Friday, 10 Aug 2018

The higher revenue per distributor will likely be further spurred by the introduction of new fashion and lifestyle products.

PETALING JAYA: Hai-O Enterprise Bhd
image: is likely to experience a tapering off of its distributorship growth, though there would be a potentially higher revenue per distributor, going forward, said Affin Hwang Capital.

The higher revenue per distributor will likely be further spurred by the introduction of new fashion and lifestyle products.

Despite recording a slower growth in the number of distributors in financial year 2018 (FY18) of 10,000 as compared to 57,000 in FY17 and 30,000 in FY16, the research house estimated that revenue per agent improved by 6% year-on-year (y-o-y), indicating a more stable and higher quality distributor base.

This has led to a 14% y-o-y increase in multi-level marketing (MLM) revenue despite only a 7% y-o-y increase in distributorship, likely due to Hai-O’s continual efforts to improve its product line-up and the improvement in quality of active distributors.

“We estimate the growth in distributor base in FY19 to mirror that of FY18 at 5,000 new distributors per month, and are targeting a net distributor base of 160,000 after accounting for attrition from expiry and non-renewal by members.

“We believe there is still ample room for growth in Hai-O’s distributor base when compared to the largest player in the MLM segment, Amway, which has 252,000 active members as of FY17,” said Affin Hwang Capital.

Apart from that, the ramping up of fashion product launches by Hai-O is timely, given the fact such products are a relatively small proportion of total direct selling sales in Malaysia.

This also ties in well with the group’s distributor base, which is predominantly female and in the bumiputra community.

Going forward, it said this should spur higher sales or distributors as new product launches would provide new revenue generators to the existing distributor base.

“After adjusting our distributor growth assumptions, we are revising down our earnings forecasts by 15% to 2% for FY19 to FY21.

“Nonetheless, we are still seeing sustainable earnings growth for 2019, supported by new product launches and attractive incentive programmes,” said Affin Hwang Capital.

The brokerage believed the recent share price weakness provided an opportunity for entry into this stock.

Thus is has retained its “buy” call with a revised target price of RM5.39, based on a lower 17 times 2019 price-earnings ratio compared with 18 times previously.


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