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Hai-O sees higher earnings in FY12
Oct 20, 2011
Source: The Edge Malaysia by Max Koh

KUALA LUMPUR: Hai-O Enterprise Bhd expects higher profit in FY12 on improving sales of its consumable products, said co-founder and group managing director Tan Kai Hee.

He said the multi-level marketing (MLM) group is focusing on promoting its consumable products such as health supplements and herbs that have higher margins and repeat sales for recurring income.

“We have identified the products that are selling well and will focus on marketing them. We believe that Hai-O has hit rock bottom and we should attain higher profits moving forward,” he said after the group’s AGM yesterday.

Tan said Hai-O’s earnings took a beating in FY11 ended April 30 due to the implementation of the new Direct Sales Act by the government in April last year. Hai-O’s net profit fell 60% to RM28.36 million from RM70.6 million a year ago, while revenue decreased 56% to RM223.25 million from RM511.06 million.

Tan said the new Direct Sales Act was implemented to prevent MLM members from stockpiling products to earn higher commissions. This in turn impacted Hai-O sales and hampered the recruitment of new members due to more stringent rules, he said.

Tan: Hai-O's earnings took a beating in FY11 due to the implementation of the Direct Sales Act. Tan noted that the move was essential for the industry as it will curtail bad practices. Hai-O has conducted seminars to educate its members.

“The reduction in stockpiling means that members will focus on selling products rather than on earning commissions,” said Tan. Hai-O currently has around 100,000 members. Earnings of other MLM companies listed on Bursa Malaysia such as DXN Holdings Bhd and Amway (M) Holdings Bhd also increased in the same period.

Tan added that Hai-O will continue to focus on its core business and maintain its dividend policy of 50% payout of profit after tax. He said contribution from Indonesia is still negligible at the moment, but the company is making efforts to sell low- to mid-end products that are better suited for the market there.

On the development of its new technology products, Tan said Hai-O had invested RM6 million in research and development in the past few years and it is now conducting pilot tests on two products.

“One product is the energy-saving device for commercial air-conditioning systems which is undergoing tests at the moment. We are also testing the hot water boiler. If these products pass the mark, we will then go in full force and market them,” he said.

For 1QFY12 ended July 2011, Hai-O’s net profit was flattish at RM7.73 million compared with RM7.8 million previously. Revenue was also marginally lower at RM51 million against RM55 million a year ago.

Hai-O said contributions from its MLM division were lower due to the slowdown in recruitment and lower sales by its members. Its wholesale and retail divisions recorded higher revenue with new marketing strategies and new retail outlets.

The MLM division contributed RM28.8 million or 56% to the group’s total revenue for 1QFY12 while the wholesale and retailing divisions contributed 23% and 17% respectively.

According to Bloomberg data, Hai-O has one “neutral” and one “sell” call with a consensus fair value of RM1.49. Hai-O has fallen 67% from a 52-week high of RM3.22 to close at RM1.92 yesterday.