Haio: Earnings Continued to Drop

Result Update

For QE31/7/2018, Haio's net profit dropped 32% q-o-q or 38% y-o-y to RM11 million while revenue dropped 28% q-o-q or 36% y-o-y to RM80 million. Overall revenue dropped q-o-q mainly attributable to lower revenue generated from the MLM division of 26.6% which was only partially offset by the increase in revenue for Wholesale and Retail divisions of 20.0% and 44.5% respectively.

Revenue for the MLM division was lower mainly attributable to the distributors had slowdown business activities during Ramadan fasting month and Hari Raya festive season coupled with lower member recruitment rate post GE14 which has resulted the dropped in revenue for the 1 st quarter ended 31 July 2018. The revenue for the Wholesale division dropped  due to lower sales in Chinese medicated tonic and tea amid to the weaker consumer sentiment. The revenue for the Retail division dropped after the sales promotion period of 4Q2018 plus subdued consumer sentiment remains despite the 3-months tax free holiday effective 1 June 2018.

In line with lower overall revenue, the company's net profit dropped 32.4% q-o-q.


Table: Haio's last 8 quarterly results 


Graph: Haio's last 54 quarterly results

Financial Position 

Haio's financial position as at 31/7/2018 is deemed healthy with current ratio at 4.0 times and total liabilities to total equity at 0.2 times.

Valuation

Haio (closed at RM4.04 yesterday) is trading at a trailing PE of 17.3 times (based on last 4 quarters' EPS of 23.42 sen). Haio paid out dividend totaling 17 sen in the past 4 quarters- giving the stock a decent dividend yield of 4.0%. Based on these, Haio is deemed fairly valued.

Technical Outlook

Haio peaked at RM5.60 in late 2017. A strong rally in May this year sent the share price to a high of RM5.39. Since then, Haio has been sliding and even broke the horizontal line at RM4.50. The next support will be the psychological level at RM4.00 and the horizontal line at RM3.80.


Chart: Haio's weekly chart as at Sep 26, 2018  (Source: Malaysiastock.biz)

Conclusion

Despite weaker financial performance and negative technical outlook, Haio is a good stock for long-term investment based healthy financial position and fair valuation. I revise my rating from Underperform (or, SELL) to a HOLD.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.