Notable MLM companies on Bursa Malaysia include Amway ( Valuation: 1.50, Fundamental: 2.50) (M) Holdings Bhd (Amway), Hai-O Enterprise Bhd (Hai-O) ( Valuation: 1.80, Fundamental: 3.00) and Zhulian Corp Bhd (Zhulian) ( Valuation: 2.00, Fundamental: 2.70). In the past 12 months, Amway’s share price slid 8%, while Zhulian’s lost almost 30%. However, Hai-O’s share price gained 12.36%.
Kenanga ( Valuation: 1.50, Fundamental: 1.80) Research analyst Soong Wei Siang, who covers the three counters, said their dividend yields have remained decent thus far (Hai-O: 6.41%; Zhulian: 4.36%; and Amway 4.28%).
But he does not think now is the right time to go in, given the prevailing economic conditions, which means these companies face the risk of missing their profit forecasts and, in turn, paying less dividends.
“Prospects in the near term remain challenging with the weakness in consumer sentiment. But over the longer term, things may recover from a low base,” Soong told The Edge Financial Daily recently.
He believes consumer sentiment will recover in the first half of 2016, as Malaysians adapt to life post-goods and services tax.
As such, MLM stocks may be more attractive in the longer term. Amway, which ended the trading session last Friday at RM9.35 (Hai-O: RM2.35; Zhulian: RM1.50), with a market capitalisation of RM1.54 billion, is the most attractive of the three counters and deserves its premium valuation, he opined. Its brands are internationally known, its product range extensive, and its revenue, profit and market capitalisation are larger compared with the other two, Soong said.
Amway is trading at a price-earnings ratio of 18.72 times, Hai-O at 14.12 times, and Zhulian at 13.32 times, according to theedgemarkets.com.
In the third quarter of its financial year ended Sept 30, 2015 (3QFY15), Amway’s earnings per share (EPS) came in at 7.17 sen, while Hai-O’s EPS for its 2QFY16 ended Oct 31 was at 4.58 sen. Zhulian’s EPS for its 3QFY15 ended Aug 31 stood at 3.67 sen.
Kenanga, in a Jan 7 note, maintained its “market perform” rating on Amway with a target price (TP) of RM9.83.
“Amway will continue to drive sales by encouraging its distributors with sales incentives as well as embarking on more marketing and sales activities to counter the weak consumer sentiment which will incur higher product costs and marketing expenses.
“Despite near-term weakness, we expect earnings to recover in FY16 as we foresee better consumer sentiment in FY16, further supported by its strong brand image and marketing activities to drive sales. Dividend yield of circa 5% can support the share price,” it said.
For 3QFY15, Amway recorded a lower net profit of RM11.78 million from RM25.02 million last year on rising operating and administrative expenses. But revenue came in higher at RM241.68 million from RM219.12 million in 3QFY14, driven by strong momentum and the successful launch of a new product.
Meanwhile, Hai-O, which is a traditional Chinese medicine products manufacturer and distributor, saw profit and revenue growth in its 2QFY16 of 24.7% and 27.5% respectively year-on-year, underpinned by strong contribution from the MLM segment.
JFApex Research in a Dec 17, 2015, note, upgraded Hai-O to “hold” from “sell” with a higher TP of RM2.50 from RM1.85.
“Going forward, we envisage that [its] MLM division will continue to sustain its stellar performance attributable to the positive response to the promotion of its ‘small ticket’ items, coupled with the group’s continuous efforts to enhance its product mix and expand [its] marketing channel as well as actively recruit new MLM members,” it added.
For Zhulian, Kenanga maintained its “underperform” rating and TP of RM1.41 in its Jan 7 note, as it remains negative on the company as consumer sentiment succumbed to a new low in Malaysia.
“Meanwhile, the Thailand market is still weak judging from the lacklustre contributions from associates,” it said.
Zhulian primarily sells costume and fine jewellery. Its 3QFY15 net profit was up 62.5% to RM16.9 million, mainly because of the stronger US dollar, but revenue slipped 11.4% to RM50.7 million on lower sales to Thailand.
ZHULIAN (5131) - Is now a good time to buy into MLM stocks?
http://www.theedgemarkets.com/my/article/now-good-time-buy-mlm-stocks
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