KUCHING: Hai-O Enterprise Bhd (Hai-O)’s long-term prospects look bullish on the back of ongoing recruitment strategies for new members and distributors for its multi-levelmarket (MLM) segment.
This was also on the back of the introduction of improved higher-margin products, and stronger contributions from its retail segment, driven by improved sales from its higher margined in-house products.
Analysts with Affin Investment Bank Bhd’s research division (Affin Research) highlighted that Hai-O’s MLM division currently has approximately 140,000 registered members.
Recall that the company has previously taken on a new marketing strategy where their focus has shifted from the higher-end value products to the more affordable products.
“This strategy has attracted around 2,000 new monthly membership additions each month, which is in line with our growth assumption of new members for financial year 2015 (FY15) to FY17 forecast.
“In view of this, we are positive that the current marketing strategy and the company’s balanced product mix are able to sustain the division’s growth momentum moving forward,” Affin Research enthused.
Currently, 85 per cent of the company’s MLM members are Bumiputera noted the analysts but Hai-O has also taken initiatives to also expand its non-bumiputera market.
This includes launching new products such as Pantas Jelly, a high growth jelly for three to 18 year olds to capture a relatively new and untouched market.
“Other than that, we gather that sales for its KAEAM bamboo salt from South Korea that was launched back in the first quarter (1Q) of FY13 is still going strong.
“Note that its food and beverage (F&B) segment made up 20 per cent of total MLM revenue in FY14. The company plans to continue to roll-out five to six new products this year, including its newest big-ticket product, the 3rd generation water filter which will be launched by 4QCY14.”
Since 2007, Hai-O has maintained a minimum dividend payout policy of 50 per cent. Analysts from Affin Research note that the company paid out a dividend per share (DPS) of 14 sen for FY14, bringing its total payout ratio to 68 per cent.
Also, in conjunction with Hai-O’s 40th year anniversary, Affin Research does not rule out the possibility of a higher payout for FY15 given improving fundamentals and the rising payout ratio in FY13-14.
“We also gather that Hai-O plans to adjust their average selling prices (ASPs) upwards by five per cent to 10 per cent for a few of their key products by end-2014 to counter rising operating costs as well as in anticipation of the goods and service tax (GST) implementation.
“The company’s last price revision was back in 2009, while some of their competitors have already revised their prices as early as two years ago.
“We believe that this would help keep the company’s margins intact. Sales volume may potentially come off slightly due to higher ASPs in the short term, however, management mentioned that this can be mitigated by aggressively ramping up sales and promotions before the price adjustment to cushion the impact on customers,” it added.
On another note, in FY13, Hai-O opened a total of seven new retail outlets, bringing its total footprint to 70 stores nationwide. The company plans to continue expanding its presence by opening three to five retail chain stores in strategic locations every year.
The company expects capital expenditure per outlet at around RM200,000 to RM300,000, which is minimal against the company’s operating cash flow of around RM26 million in FY14.
“We also gathered that Hai-O had just recently closed one of its loss-making outlets and management expects to continue consolidating and refurbishing its unprofitable outlets.
“Additionally, Hai-O plans to focus on increasing sales from its in-house brand products, which typically command higher margins.”