Friday, December 26, 2008

Article On Hai-O On Star Business

I was bemused when I read the following article yesterday on Hai-O: Hai-O sales rise on lower petrol prices

Firstly the company's financial controller Hew Von Kin talks about the current company's prospects.

  • PETALING JAYA: Hai-O Enterprise Bhd says consumer sentiment improved in November, thanks to lower petrol prices.

    “October was our weakest month in the second quarter but sales showed improvement last month as the Government started to reduce petrol prices and consumers geared up for the festive season,” financial controller Hew Von Kin told StarBiz.

  • “We expect the wholesale and retail divisions to weaken after Chinese New Year while the MLM division is likely to stay resilient as people seek part-time jobs to supplement their income,” he said, adding that new MLM memberships would offset the slower spending next year.

    Hai-O launched a series of healthcare supplement products last weekend, which have received positive response so far.

    “We plan to launch a range of skincare products in the first quarter of next year. We have already secured the approvals and are currently working on the packaging and design,” Hew said.

Then the following passage caught my attention.

  • Last week, Hai-O reported a stronger net profit of RM10.9mil for the second quarter ended Oct 31, or almost 20% higher than the previous corresponding period of RM9.1mil.

    Revenue jumped to RM87.3mil from RM80.5mil a year ago, thanks to higher contribution from the wholesale and MLM divisions. For the first half year, net profit was RM24.5mil on revenue of RM200.2mil.

    On a quarterly basis, second-quarter net profit was lower by 20% from the first quarter’s net earnings of RM13.6mil.

    In the filing to Bursa Malaysia, the company said the weaker quarter-on-quarter results were due to
    smaller contribution from MLM.

    However, the retail business achieved better sales in the second quarter from the first, thanks to members’ sales promotions and higher margins from its house brand products.

    Hai-O’s internal growth target for the financial year ending April 30, 2009 was to achieve 5% in sales, it said.
I always dislike such comments. Yes, on a yearly same quarter comparison, Hai-O numbers looked great but there is drastic weakness in when compared on a q-q basis for the past few quarters.

As posted in
Review of HaiO's Latest Quarterly Earnings

  • Which means, if one looks at the very immediate picture, HaiO's earnings are deteriorating at an extremely tremendous pace. The last three quarters, its earnings has went from 18.942 million to 13.602 million to only 10.889 million!
For me, I am bemused at the financial controller. Why didn't he mention or discuss on why Hai-O's earnings has been worsening each quarter?

And that 5% growth rate. That statement as a stand alone was grossly inaccurate. Truth is, Hai-O had stated CLEARLY that they are forced to reduce their growth rate from 20% to a mere 5%!

As stated in its own earnings notes.

  • Due to the current global financial turmoil and weak market condition, the Company had revised downward its growth rate from 20% to 5% as mentioned above. However, the Company will strive for better performance in this challenging environment and work towards higher growth rate.

For a company who was projecting almost 20% growth and being forced to revise downwards to a mere 5% due to weak market condition, totally differs that saying a company is forecasting a 5% growth. For as a stand alone, it does not tell the whole story!

And the article ends by saying.

  • OSK Investment Bank, in a report, said next quarter’s performance would stay strong driven by the retail division, which would benefit from the Chinese New Year celebrations next month.

    “Hai-O’s attractive incentives will continue to drive the expansion of its MLM network and help the group to expand into new markets, like Indonesia, which will kick-start in March,” OSK said.

    Hai-O is cash-rich with a war chest of almost RM48mil and generates good dividend yield of about 13%.

Again I am bemused.

Yes, Hai-O currently has a war chest about 48 million.

However, let's be more accurate here!

This war chest is getting smaller, yes?!!!!!!

As posted earlier in my posting, Review of HaiO's Latest Quarterly Earnings

Last quarter, it had cash equivalents of 60.326 million. It's now only 48 million!

Now that depicts a totally different picture, doesn't it?