KUCHING: Hai-O Enterprise Bhd (Hai-O) is levaraging on the sales of new products for different market segments to fuel its earnings growth.
Following a company’s visit, the research arm of JF Apex Securities Bhd (JF Apex Research) in a report said the direct selling company has launched several new products catering for different market segments such as personal care, beauty, health and resident to enhance its turnover.
JF Apex Research observed that Hai-O also plans to boost its wholesale division with the distribution of new products.
It noted the group has been awarded a sole distributorship of Maotai, a famour Chinese liquor recently.
JF Apex Research believes that the development will generate another source of income for its wholesale division.
Meanwhile, the research firm noted currently Hai-O’s wholesale division carries the exclusive distribution rights of over 50 renowned brands of Chinese medicines, health tonic, tea and healthcare products with supply to 100 wholesalers and 2,000 retailers.
On another note, JF Apex Research said Hai-O’s multi-level marketing (MLM) division has managed to attract more members.
The research firm noted on average, Hai-O group has managed to recruit some 2,000 members per month after attrition rate.
The research firm believed the company’s ability to attract new members was due to low initial start-up capital on promoting ‘small-ticket’ items as compared with ‘big-ticket’ items.
In the meantime, it observed the company has shifted its focus to the sales of ‘small-ticket’ items strategy from ‘big-ticket’ items.
Nonetheless, JF Apex Research said, “Despite increasing its membership and introduction of new products, we envisage that any positive impact will only be felt over a longer period of time.
“In the short term, at least for financial year 2015 (FY15), we foresee that the revenue from its ‘small-ticket’ items are unable to support the drop of its ‘big-ticket’ items as sales volume of the former with relatively lower value has yet to reach a satisfactory stage to compensate the decline in the sales volume of the latter with relatively higher value.
“Thus, we expect there will be a marginal drop in the division’s topline.
“However, over the longer run, as for FY16 and FY17, we foresee this division (MLM) to pick up its growth momentum with sales of ‘small-ticket’ items outweigh the ‘big-ticket’ items,” the research firm believed.
As for Hai-O’s retail segment, JF Apex Research is less optimistic on its growth.
The research firm opined that the company’s retail segment could be affected by weak consumer sentiment due to rising cost of living.
Thus, it expects the revenue contribution of Hai-O’s retail division to increase marginally spurred by its loyalty programme membership on festival occasions.
Moreover, JF Apex Research expects the direct selling company to declare higher dividend for FY15 to reward its shareholders in conjunction with the company’s 40th year anniversary celebration.
It observed that Hai-O has a dividend policy of distributing 50 per cent of its yearly earnings as dividend to shareholders.
Despite that, JF Apex Research believed a challenging operating environment for the retail and wholesale divisions could impact Hai-O near term earnings due to weak consumer sentiment and less spending by consumers.
Therefore, the research firm reduced Hai-O’s earnings forecast for FY15.