Not many would have expected a traditional Chinese herbal and medicine retailer to become a booming import/export and investment holding business in China (via Hai-O (Hong Kong) Pte Ltd), and possibly in Indonesia as well. But that is exactly what Hai-O Enterprise Bhd. Listed on the main board of Bursa Malaysia, has done.
This is not surprising giving Hai-O Group's net profit for the first three months ending July 31 surged 76% to RM7mil compared with RM4 mil in the corresponding period last year. Revenue for the quarter rose almost 51% to RM59.3mil from RM39.4mil previously, while earnings per share improved to 10.53 sen from 5.41 sen. For the financial year (FY) ended April 30 2007, their after-tax profit shot up more than 100% to RM21.38mil (FY 2006: RM10.18mil), with a stronger revenue of RM189.35mil (FY 2006: RM146.80mil), a 29% improvement.
This is Hai-O's 33rd year in the business. In the past five years, Hai-O has undergone a massive transformation. Our improved revenue is because of effective marketing strategies that have penetrated the Malay market for our multi-level marketing (MLM) division, said Hai-O Group Managing Director Tan Kai Hee. The compnayis also proud of its assets-56 self-owned outlets (soon to increase), 600 employees, 60 stockists, thousands of shareholders, 60,000 direct selling members and 120,000 loyally devoted customers and is looking to become a top-notch blue-chip corporation in the local bourse.
Room for growth
The Malaysian Organisation of Pharmaceutical Industries estimates the health food and traditional medicine industrys growth will be hovering at between 8% and 10% with an approximate market size of about RM2bil. Room for greater growth is plenty.
Another factor that made us believe that the era of the Great Future of Hai-O has arrived, is the peaceful rise of China and the rapid growth of its economy, its human and financial capital plus its superior products that will be available worldwide, said Tan.
Hai-O's strategy in facing these new challenges is its combination of strength from all fronts, sharpening its mind and spirit, modernising its equipment and focusing on its win-win policy with its business partners.
Business divisions in the pink
For the FY ending April 30, the MLM division (under subsidiary Hai-O Marketing Sdn Bhd) had contributed a turnover of RM99.7mil and pre-tax profit of RM13.9mil respectively, representing an 85% sales increase and more than 120% increase in profits, compared to the previous financial year. Thanks to visionary moves in 2001 ( repositioning the division to boost participation among Malay entrepreneurs), Hai-O's marketing planand payout ratio struck a chord among enterprising self-starters; motivated millionaire distributors from its loyal consumer network.
Effective training programmes were identified as among the key reasons for the favourable increase in sales, having cultivated a sense of belonging and the Hai-O My Choice for Life motto among Hai-O MLM distributors. Aggressive member recruitment schemes and advertising and promotion sponsorships such as the Jom Heboh tv programme on TV had created awareness and a profound impact among the MLM industry. An average of 1,000 new members join Hai-O MLM monthly and the continuous introduction of new products such as the Bio-Aura water purifier and Bamboo Salt have contributed additional valuable revenue.
Hai-O also sent 212 Bumiputera distributors on an Umrah trip this FY as part of its MLM travel incentive which. According to Tabung Haji, Hai-O is the first non-Bumiputera company to ever fund an Umrah trip (at a cost of RM1.025mil) with the highest number of participants. Another 88 distributors also qualified for another incentive trip to the Gold Coast in Australia.
Wholesale
The wholesale division (under subsidiaries Grand Brands (M) Sdn Bhd, Kinds Resource Sdn Bhd, Hai-O Medicine Sdn Bhd and Chop Aik Seng Sdn Bhd) is the second largest contributor to the Group in FY2007, with 3,000 retailers like medical halls, restaurants, mini markets, liquor halls, supermarkets and convenience stores contributing 25% to overall Group sales and 35% Group profit.
Pu-Er Tea is one of the top contributing products to the wholesale division, recording RM10mil in sales and RM4.2mil in pre-tax profit, a significant improvement from the previous year. Hai-O is confident the Pu-Er Tea, which has gained favourable place in the hearts of tea drinking enthusiasts, will continue to steer the growth of the Group and plan to establish a Pu-Er Tea trading centre in the heart of Kuala Lumpur. Pu-Er Tea, widely known for its various health benefits is the star among all tea products in China. The Malaysian weather is very suitable for ageing Pu-Er, complementing Hai-O's aspiration of promoting Pu-Er as its key growth driver. Other main products such as medicated wine and health food also registered growth in sales and profit. The Group had secured distributorship for more new branded products during the year such as Mengniu dairy products.
Retailing
The retail division (under subsidiary Hai-O Raya Bhd) increased slightly to RM37.57mil for FY ending April 30. Profit increased almost two-fold to RM1.65mil. The divestment of interest in loss-making subsidiary Pasaraya TFHO D'Choice Sdn Bhd had substantially improved the performance of the retail division. Four new outlets (making the total number to 56 outlets) were opened in the FY2007 in 1Utama Shopping Mall (Petaling Jaya), Queensbay Mall (Penang), Pearl Point (Kuala Lumpur), and Sungai Long (Kuala Lumpur). Another three to five new outlets are in the pipeline in high-traffic shopping malls. With this in mind, brand new outlets are underway at Bukit Raja Jusco in Klang (touted the biggest Jusco complex in South-East Asia), Puchong Tesco and Carrefour in Subang Jaya.
The aggressive promotion of the Hai-O Raya Loyalty Programme as an in-house customer membership programme also contributed to the increase in sales, by helping members enjoy exclusive discounts and privileges. Member's Privileges Sales event are held twice a year, and had received good response from valued customers.
Hai-O has over 120,000 members who provide constant revenue, which accounts to almost 40% of sales in the retail division, a record high in the last 18 years.
Manufacturing
Sales contribution from this division (helmed by subsidiaries Teik Seang Wine Merchants Sdn Bhd, Hai-O Pharmaceutical (M) Sdn Bhd and QIS Research Laboratory Sdn Bhd) is relatively small in relation to the Group's turnover. It recorded sales of about RM1mil and pre-tax profit of RM0.33mil for the year under review. The lower profit is mainly due to the high initial cost of setting up QIS Research Laboratory Sdn Bhd, a full-fledged analytical laboratory, offering a wide range of testing services in the areas of microbiology and chemical analysis in traditional medicine and food products. The laboratory is run by a team of qualified chemists, microbiologists and well-experienced supporting staff to meet client requirements.
Quality assurance programmes are carried out in the laboratory to ensure analytical precision and accuracy, while conforming to the requirements of the Department of Standards Malaysia (DSM). Hai-O is expecting the laboratory to contribute positively to the Group's bottom line for FY2008.
Corporate social responsibility
Giving back to society is a priority for Hai-O. With a diverse group of stakeholders, the Group believes in doing business the responsible way, by putting aside finds for charity organisations, educational and educational and cultural causes. The Group is setting up the RM1mil Hai-O Foundation to promote multi-racial harmony and support various aid organisations and cultural activities. Not just that, Hai-O also responded to the flood catastrophe that took place between December 18, 2006 and January 13 this year by supplying bottled mineral water to Johor flood victims. At the same time, a relief fund was made available to six staff members who were affected by the floods.
Earlier this year, Hai-O Marketing sponsored RM15,000 worth of the Mystical Steppes: Along the Silk Road show tickets for fourl Malay shelter homes in the Klang Valley- Rumah Anak-Anak Yatim Shifa in Setapak, Rumah Bakti in Hulu Kelang, Rumah Anak-Anak Tengku Budriah in Cheras and Pusat Jagaan Kanak-Kanak Nur Hikmah in Kampung Attap.
What's ahead
Hai-O was one of nine Malaysian companies that made it to the Forbes Asia 2007 Best Under A Billion list proving that it is force to be reckoned with.
Among the several exciting business ventures the company has in store are establishment of a grand warehouse designed to store Pu-Er Tea because of the suitability of the Malaysian climate for storage of the tea. With this warehouse, the Group is able to provide warehousing and storage support to Pu-Er tea makers who wish to keep their products in a facility. Hai-O is also planning to penetrate the export market. The Middle East, in general, and the United Arab Emirates (UAE), in particular, are experiencing significant growth in the healthcare sector. The healthcare market is estimated around US$74bil according to MATRADE. Malaysia's export to this category currently account for less than 0.06% of UAE's annual imports. The potential to exporting its Halal-certified products is therefore huge.