Affin upgrades Hai-O rating

AFFIN Investment Bank has upgraded retailer and multi-level marketing (MLM) firm Hai-O Enterprise Bhd (7668) to "add", from "reduce" previously, mainly driven by better-than-expected performance of its MLM division.

An "add" rating means the total return is expected to be between 0 and 15 per cent over the next 12 months.

Hai-O's MLM division's revenue took a big hit in its second quarter ended October 31 2008, as consumers pulled back spending on two of its major high-value product contributor: water treatment and slimming products.

"Accordingly, MLM sales have held up relatively well since then and are above the low experienced in September-October. This is attributed to the steady recruitment of new members at about 2,000 a month ... the MLM division appears to be less vulnerable than previously feared," said Affin Investment Bank in its research report yesterday.
It also upgraded Hai-O's MLM sales forecast to 5.4 per cent year-on-year growth, from a 0.2 per cent decline previously, for the financial year ending April 30 2009. For the group's total sales, it is forecast to grow 1.2 per cent to RM378.3 million.

Target price has been revised upwards to RM3.70 from RM2.90 previously.

"Key risks to our positive stance are: unexpected reduction in dividend payout ratio to below 50 per cent and MLM division's revenue coming in below our expectations," said Affin Investment Bank.