KUCHING: The research arm of Kenanga Investment Bank Bhd (Kenanga Research) is re-looking at Hai-O Enterprise Bhd (Hai-O) with renewed interest following a meeting with the group’s key management.
According to the research arm, key management featured in the meeting were Hai-O’s founder, Tan Kai Hee; general manager Tham Yoke Lon; and chief financial officer (CFO) Hew Von Kim who revealed some of the business strategies Hai-O has put in place in order to support its distributor force growth in its multi-level marketing divison.
“To keep its distributors momentum going, the company allocates a budget of RM10 million every year for its incentives and promotion programmes,” the research arm reported, noting that this year the MLM company would include extra festivities to reflect its growing distributor base.
Hai-O holds bi-annual incentive trips for its distributor base and for 2017; the group will be increasing its target of eligible distributors for each bi-annual trip from 500 to 600.
Additionally, its promotional programmes will also receive similar upgrades as the company is upping its target of 40 eligible distributors for appreciation awards to 100 in 2017.
“These incentive trips and promotions are key factors in expanding the number of distributors while maintain the loyalty of its existing distributors,” explained the research arm.
With that said, it seems Hai-O’s focus on pleasing and rewarding its distributor base is a winning formula as its MLM segment is seeing steady momentum driven by both expansion and strong productivity in its distributor base.
Re-looking at the group’s results from the first nine months of 2017 (9M17), its MLM segment saw impressive growth of 58.6 per cent year over year (y-o-y) alongside an almost doubling of its distributor base from 70,000 to 120,000.
These impressive figures from its MLM segment allowed a 78 per cent contribution to the group’s total operating profit for 9M17 and as a result, net profit for that period grew by 64.2 per cent to RM41.3 million.
“This increased contribution of the MLM segment has also reduced the risks of Hai-O’s other operating segments, including wholesale and retail segments, which are exposed to currency risk and weak consumer sentiment,” added the research arm.
Looking forward, Kenanga’s confidence in the group was sealed as its management guided that they would be targeting the younger generation of distributors who are likely to increase productivity even more as they are ambitious for extra income amidst a challenging economy and job market.
Additionally, its MLM division will also be venturing into the fashion and beauty segment as the company will soon be launching a higher end brand ‘Infinence’, under the guidance of their non-independent and non-executive director Professor Datuk Dr Choo Yeang Keat – founder of the luxury shoe brand, Jimmy Choo.
That being said, the research arm now reckons that they have been too conservative with Hai-O’s distributor force growth in the past and has decided to raise its FY17-18E profits for the group by 1.4 and 13.4 per cent respectively to reflect this change of heart.
Correspondingly, its ‘market perform’ call is maintained with a target price that has also been nudged higher to RM3.64 per share.