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Results Note � Hai -O (ADD, maintain)
- Weaker as the group promoted �more affordable� items Maintain ADD on Hai-O, as we continue to like the company�s healthy fundamental and attractive dividend yield. Hai-O registered healthy 3QFY04/14 revenue growth of 9.2% qoq to RM71.6m due to higher contribution from its wholesale and retail divisions. On a 9MFY04/14 YTD basis, Hai-O�s revenue and core earnings fell by 1.2% and 9.9% to RM192m and RM30m respectively. We attribute this to Hai-O�s weak 1H14 results, which was affected by weaker demand for its foundation garments. Hai-O had delayed its promotional activities for its big-ticket-item products, pending the launch of an improved version of its foundation garment and had instead pursue its strategy in promoting �small ticket� items which has received good response from both existing and new members. Taking into account slower private consumption, and given that the group is encouraging its distributors to market its �small ticket� products, which is more affordable to consumers, we trim our assumption for the growth of revenue per agent from 7% to 5%/6%/6.5% over FY14-16. As such, our FY14-16 EPS forecast is now lowered by -2.4%/-4.4%/-5.9% respectively. Following our earnings downgrade and after rolling over our valuation horizon to CY15 EPS, our TP is raised to RM2.97 from RM2.95 previously, pegged to an unchanged target multiple of 11.5x.
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