Haio- a comeback kid

Results Update

Haio has just announced its results for 4Q2009 ended 30/4/2009. Its net profit increased by 22.4% q-o-q to RM14.7 million on a 30.1%-increase in turnover to RM133 million. The company attributed the improvement to the success of its house brand "Bio Aura" water filter and increased membership in its MLM division. However, Haio's net profit for 4Q2009 was lower than its 4Q2008 by 22.7% while turnover was down 0.5%. The results pf 4Q2008 had benefited from the presence of the CNY2008 festival while CNY2009 festival fell in 3Q2009 (where the positive effect was muffled by the poor consumer confidence resulting from the global financial crisis).



I have appended below Haio's top-line & bottom-line performance for the past 17 quarters. One can see clearly that Haio's results peaked in 4Q2008 and dropped back for the next 2 quarters before recovering in the past 2 quarters. Can Haio maintain its impressive growth rate in this challenging time? Only time will tell...


Chart 1: Haio's 17 quarterly results

Valuation

Haio (closed at RM4.44 last Friday) is now trading at a trailing PE of 7.2 times (based on last 4 quarters' EPS of 62.3 sen). For a well-managed company, Haio's valuation is undemanding.

Technical Outlook

Despite the strong financial performance, I am a bit wary about this stock. I feel that Haio is rather extended after rising from RM0.80 in early 2006. From the daily chart, I have highlighted the negative cross where the 50-day SMA cut below the 100-day SMA in early-Mar 2008 (denoted as 'A') and the negative golden cross where the 50-day SMA cut below the 200-day SMA in mid-December 2008 (denoted as 'B'). Despite the negative golden cross and the share price dropping below the 200-day SMA, Haio managed a complete recovery in April this year! The positive golden cross has been achieved & share prices are above the 200-day SMA. This complete reversal can be attributed to 2 factors- the strong recovery in Haio's financial performance & the thinly-traded volume of this stock.

One thing to note: Haio may have benefited from its steady share buybacks which commenced in March 2003. Its holding of Treasury shares stood at 1.25 million units as at June 2, 2009. In August 2008, Haio distributed 3.23 million Treasury shares to its shareholders on the basis of 1-for-40. With its strong financial position as at 30/4/2009, where its low gearing stood at 0.1 times, current ratio stood at 1.5 times plus cash balance of RM51 million, Haio can continue with its share buyback for a long while.


Chart 2: Haio's daily chart as at 20090626 (Source: Tradesignum)

Conclusion

Based on improved financial performance & relatively attractive valuation, Haio could be a good stock for long-term investing. Nevertheless, it is not easy to call a buy on this stock at the current level. A good entry is around RM3.50-4.00 but that's not likely to happen any time soon. The dilemma for those who have this stock is equally daunting- to take profit at RM4.50-5.00 or not to take profit.