PETALING JAYA: Unnoticed by many, the share price of wellness and multi-level marketing (MLM) company Hai-O Enterprise Berhad has continued to rise, fuelled by a growing distributor base and strong demand for its food and beverage as well as fashion and beauty products.
While seen predominantly as a defensive stock because of its high dividend yield, Hai-O’s share price has behaved more like a high-beta or volatile stock.
The company’s share price has risen 85.52% on a year-to-date basis, with a market capitalisation of RM1.42bil. This appreciation has also given it a price earnings (PE) ratio of 24.33 times, although consensus estimates expect this PE to drop to 17.54 times next year.
The company’s growth has been driven by e-commerce and the rise in social media marketing. Net margins over the last decade have also always been in the teens.
To date, Hai-O has some 150,000 MLM members, a significant jump from the 50,000 members it had just two years ago. Sales has picked up over the same period. Soon it may be giving Amway – Malaysia’s largest MLM company – a run for its money. Amway today has some 240,000 members.
For the financial year ended April 30, 2017, revenue was up 35.74% to RM403.99mil while net profit was up 63.07% to RM59.26mil. For the first quarter to July 31, 2017, net profit jumped 83.35% to RM17.87mil on the back of a 58.32% increase in revenue to RM124.54mil. This was quite a surprise considering that its first quarter sales are seasonally weak.
The higher sales growth was due to its intensive sales campaign in relation to strong response from its newly-launched fashion products, hijabs, and grand sales campaign for its 25th anniversary celebration.
“We are now adding some 5,000 distributors every month. Social media has impacted our sales positively. Most of our distributors now market their products on these platforms,” said Hai-O managing director Tan Keng Kang, whose father, Tan Kai Hee, now executive chairman, founded the company in 1975.
He added that some 70% of its distributors were women, mostly aged between 25 and 40. About 90% of its members were bumiputras.
“Most of our 150,000 members are active, The members who turn entrepreneurs play a huge part in driving our MLM growth. it is their resourceful and innovative culture that has been the key competitive differentiator between us and others,” said Tan.
Hai-O group chief financial officer Hew Von Kin added that a conscious decision made by Hai-O that has bore fruit was moving in to offer smaller ticker items. Previously, we were selling big ticker items such as our water filters and corsets.
Those were durable with slow repeat orders. Since offering our food and beverage, food supplements and fashion and beauty products, we have seen a lot more recurring sales. And with most of our members being women, it is also the women and beauty products that are among our best sellers,” Hew explained.
Tan said consumer sentiment has also picked up, as evident in Hai-O’s improving retail division.
Bumiputras dominate Hai-O’s MLM market while Chinese mainly frequent the retail outlets. Out of the more than 500 products, some 200 cater for the MLM market and others to the Chinese market.
Presently, close to 80% of Hai-O’s profits comes from the MLM segment, while wholesale takes up 12% and the retail segment takes up 2%.
Hai-O sits on a cash pile (including its short term investments) of more than RM100mil and pays 50% of its profits after tax as dividends. Despite the rise in share price, the stock still has a dividend yield of some 3.05%.
Hai-O has paid out some RM304mil in dividends since listing in 1996. Furthermore, the nature of the business means the company does not require much capital expenditure.
“Our business is predominantly very cash based with little investments required. Setting up new retail outlets and MLM branches or upgrading our factory doesn’t require much capital outlay,” Hew said. The digitalisation of its business also saw net margins improve by some 2%.
“Slowly but surely, Hai-O is moving on to digitalise all of its operating platforms. Our operating efficiencies improved by 2% in the last quarter because of social media and digital marketing efforts. We have tremendously reduced our postage and printing cost,” said Hew.
To grow its MLM business, Tan said the company will be introducing new lifestyle and leatherwear products over the next few months.