KUALA LUMPUR: OSK Research said HAI-O ENTERPRISE BHD [ ]’s 1QFY12 revenue dropped 6.9% on-year to RM51 million while net profit was down slightly by 0.9% on-year to RM7.7 million, which was below its expectations.
The research house said on Thursday, Sept 29 the drop in revenue was mainly due to lower contribution from the multi-level marketing side which recorded 18.3% on-year sales decline on slower membership growth and lower average sales per distributor.
OSK Research said despite the weaker sales, EBIT margin improved to 21.7% from 19.7% in 1QFY11.
The better margins were due to increased contribution from higher margin products, lower costs of imported goods on stronger RM against USD and general improvement in operational efficiency and productivity.
Net profit however declined due to a higher effective tax rate.
“Given the below than expected results, we cut our FY12/13 earnings forecast by 11.8% - 18.3% respectively. Our fair value is hence reduced to RM1.70. Nonetheless, after the sharp slide in share price, our FV still offers 2.7% upside and hence we upgrade Hai-O from Sell to Neutral,” it said.