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New Hai-O strategies to lift MLM operations
Oct 01, 2010
Source: The Star Business
 

MD : It will introduce new products and add distributors

PETALING JAYA: Hai-O Enterprise Bhd’s first-quarter results were below analysts and consensus estimates, spurring market concern on the company’s performance, going forward. However, Hai-O management has ensured that it is ready with various strategies to strengthen its business.

Group managing director Tan Kai Hee told StarBiz the current downturn was just a temporary scenario due to some negative newsflows and internal matters and that the company had “cleaned up” the matters.

“Introducing new creative products and adding new distributors will help drive our multi-level marketing (MLM) business,” he said.

Tan added that Hai-O planned to introduce new technology products by early next year under a newly formed Energy Division.

He said the new division would help to offset the slowdown in MLM business and would be the company’s growth driver in the future.

Hai-O net profit for the first quarter ended July 31 dropped 57.7% to RM7.8mil compared with the same period last year. Its revenue decreased 63.1% to RM54.8mil from RM148.6mil previously. Hai-O said in a release that the drop was mainly due to lower revenue recorded by the MLM division.

However, its operating profit margin for the current quarter rose about 2% compared with the previous corresponding quarter, contributed mainly by high-margin products sales, the weakening of US dollar and improvement in operating efficiency.

Its share price dropped 32 sen, or 9.82%, to RM2.94 yesterday.

OSK Research said Hai-O’s annualised profits were much lower than its and consensus estimates of RM60.4mil and RM73.9mil respectively. It said the poor numbers were mainly attributed to the company’s MLM division.

“The MLM sales plunged 73% year-on-year due to slower membership growth, which was partly affected by the more stringent rules on new member recruitment imposed by the authorities,” it said.

The research house believes the weak MLM sales were also further impacted by the fewer working days due to Hari Raya festive season because bumiputras make up about 90% of Hai-O members.

“The contraction in MLM sales was partially offset by the year-on-year sales growth registered by other divisions – wholesaling, retail and manufacturing,” it said.

RHB Research Institute Sdn Bhd said Hai-O net profit was below the research house and consensus estimates, accounting for only 11.2% and 12.2% of its and consensus full-year net profit forecasts respectively.

“We believe Hai-O’s outlook for FY11 is bleak, driven mainly by its slowdown in the MLM division.

“Despite other divisions performing relatively in line, these divisions only contribute 36% and 41% of revenues and operating profit respectively, while the rest is derived from MLM,” it said.

It said the only exciting prospect now was the expansion of Hai-O’s MLM business into Indonesia but the contribution from its Indonesia venture was still small.