I remember as a kid walking into a Hai-O shop near the place I stayed - it is one of the few big enough retail outlets to have air-conditions. The company has since then grown so much although I would not know where it was positioned about 35 years ago. Hai-O is a story about two things - chinese medicinal products and turning them into a MLM business. Both of them have one trait - high profits margin if executed well.
It was probably having that high margin trait many years ago and today it is the same. Ever notice, among the ones that are still surviving in our neighborhood are the chinese medicinal shops. All the other types of groceries are now dead - killed by the Tesco(s), the Giant(s), the AEON(s). Chinese medicinal shops however are still around - something that the above names would not be able to kill yet. If I am a consultant to these hypermarket giants, I would advice them to offer a specialized unit selling these products, would have a growth factor there, I would think. The margin is fantastic as well.
Anyway, among the many - Hai-O has moved one step further - MLM. Over the years, it has managed to build that business to a big factor to its business. It is amazing what business people can make out of health products through MLM. The things that Hai-O is doing since it is in the consumer products space is supposed to be stable, consistent, and defensive. There should have been some level of consistencies. But...
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| 5-year highlight between 2008 to 2012 |
Anyone can let me know the reason behind the huge drop between 2010 and 2011? I am thinking, as an investor, if I were to buy its shares in 2009, today I must have been really pissed off. Not by the one or two missteps in pricing, economic downturn or anything of that sort, but from revenue? To me how can medicinal products have such drops.
Let's look at several other indicators. The best revenue year was 2010 and if it is doing well, its MLM is the major contributor. Other segment - manufacturing and retail are pretty consistent. Notice the wholesale is basically supporting the MLM to a certain extent.
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| 2010 segmental report for revenue |
On a worse year - say in 2011, its MLM is the less performing one. From 2010 to 2011, the MLM's revenue basically dropped 70%. Seriously, I can't explain or imagine how can such a drop happened. It feels like the group has lost more than half of its performing MLM agents whom have moved into promoting some other people's products. MLM guys - can this happen?
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| 2011 segmental report |
If you notice, the net profit margin is consistently between 13% to 17%. That's the consistent part. The volatility in revenue performance which trickle down to the net profit though affected its share price. Look at where it peaked after the huge run between 2008 to 2010. The only thing I can speculate is people started to eat more medicinal products during hard times or more people moving into second job- MLM during the harder times of 2008 to 2009?
Anyway, as I see it for 2012 and half of FY2013 its business started to pick up. Would it surprise again is the question...
13 comments:
Hi Felicity,
I got to ask you this. Where did you get that technical chart from? What program is that?
HAIO business was heavily affected by the government's tightening on the stockist ruling back then when they amended the Direct Sales Act. The move by the government affected HAIO's recruitment then and subsequently HAIO's net profit fell 60% to RM28.36 million from RM70.6 million a year ago, wwith 56% decline in sales etc etc etc...
You could trace back the stories as far back as mid 2010 to understand more. A quick check led me to HAIO's press release : http://www.hai-o.com.my/pressreleases_detail.php?id=2
Thanks David, but it did not really happen to Amway which is a pure direct selling company.
Are people stock piling so much or could it be the agents are stock piling way too much in 2010 and 2009? - meaning the goods changed hands from principal to agents. But if that happened, the receivables would have met some issues - don't see that either.
Don't meet too many MLM people, hence I would not understand certain actions. but still the 70% drop in MLM sales alone is way too much for me to digest.
I've had bad experience with MLM, but considering that HAIO does offer actual products which is beneficial, I guess it's worth looking into. Is the current price a good buy?
Yes, if its performing consistently.
Hi Art
It is one of the online trading site.
Hi Felicity,
Do you have thoughts/insider views on Zhulian's business model or management? The company look fairly decent numbers wise with ROE of 20+%, PE around 11, DY of 5%
A stock worth checking out for the more speculative part of your portfolio - Herbalife.
Came under a huge short sell attack recently due to the MLM model.
Even if you don't buy in, is one hell of a show to watch!
u shud look at what product that they sell in 2010, it is merely pyramid business selling cheap water filter at really high price. when people realize this, a lot of their MLMer leaving the hai-o. the scheme, an agent has to buy 15 water filter at 30 thousands(u can apply loan for this), and headhunting downline with the same scheme. the rumors spread all over internet. i think it is water filter bubble, made in china, that cause the sales spike in 2010 and sudden drop year afterward
Thanks Zayed.
Better stay away from MLM without a sustainable consumption model. A acquisition based growth model is illegal in many countries.. they called it endless chain scheme or Made-Off scheme..
Classic ponzi model. Not alleging Hai-O is, but given the volatile 2010 sales may be caused by a pop caused by 1 product, it's dangerous to assume the revenue is sustainable like those of Coke or GAB.
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