Hai-O Enterprise Bhd( March 15, RM1.14) BUY. We are calling a buy on Hai-O-which is involved in the distribution and wholesale of medical products- with a fair value of RM1.45 per share.Our fair value,with 28.3% upside, is based on our projected CY2006 EPS of 15.2 sen against a target PER of 9.5 times.
Management is on the verge of disposing of its non-core businesses in a move to improve operational efficiency. By doing so, return on equity is expected to improve tremendously as the non-performing/core assets will eventually be disposed of. Hai-O's cash-flow position has improved to net cash of RM12 million from net debt of RM5.1 million in FY2002.
Despite the proposed share dividend that is expected to dilute Hai-O's future EPS, management indicated that GDPS, going forward, is expected to increase from seven to eight sen going forward.
For FY2006, even though revenue is only expected to rise by 6.2% to RM147.8 million, PBT is anticipated to amplify by 29.1% to RM13.3 million. The higher PBT should result from overall improvement in its profitability margins, particularly from its multi-level marketing, wholesale and manufacturing divisions.
For FY2007, we expect PBT to improve by 33.1% to RM17.7 million as it bears fruit from its rebranding exercise. --SBB Securities(March 14) THE EDGE MALAYSIA (MARCH 20, 2006)