Hai-O Enterprise Bhd reported a revenue of RM144.3mil and net profit of RM9.9mil for FY06. A first and final dividend of 8 sen less 28% tax was proposed.
Comment by Mayban Securities: Revenue increased 3.6% while net profit gained 79% when compared with FY05. Its multi-level marketing (MLM) division is the largest revenue contributor to the group, accounting for 37.5% of FY06 revenue. We attribute its strong sales performance to a good marketing plan and lucrative commission structure. The group has more than 34,000 distribution agents and over 50 stockists and branches.
However, turnover for the wholesale and retailing business has contracted by 4.3% and 2.9% respectively due to disposal of non-performing subsidiaries. This in effect has boosted its pre-tax profit to RM15.7mil, which is a 52.4% jump compared with the previous financial year. Margins have also improved since.
Besides selling Chinese medicines, medicated wines and healthcare products, Hai-O is also venturing into the tea business, with the introduction of Puer-Tea. According to management, Puer-Tea is a tradable commodity, similar to coffee. However,we have yet to incorporate the Puer-Tea business into our forecast.
Currently, Hai-O has RM13.1mil in cash and cash equivalents. Its gearing ratio as at the fourth quarter of 2006(4Q06) is only 0.05 times. The proposed 8 sen dividend, once approved by the shareholders, will translate into a gross payout of approximately RM5.3 mil. Recommendation: Maintain fair value of RM 1.58. (The Star, 1 July 2006)