Ramping up its MLM marketing efforts
- 1QFY4/23 core net profit of RM5.4m (-21.6% yoy) was below our expectations due to weaker-than-expected results from its MLM division.
- Nonetheless, we expect Beshom to post better results in the coming quarters, driven by aggressive recruitment and marketing activities.
- Reiterate Add with a lower TP of RM1.60 (11.1x CY23F P/E).
1QFY4/23 core net profit of RM5.4m was below our expectations
Beshom Holdings Bhd’s (Beshom) 1QFY23 revenue fell marginally by 1.8% yoy to RM48.3m, primarily due to lower revenue from its MLM division (-28.6% yoy) as a result of slower-than-expected recovery in member recruitment and renewal. However, this was mitigated by the increase in revenue at its wholesale segment (+57.3% yoy; promotional sales campaign for its best-selling Chinese medicated tonic range of products and higher sales to duty-free shops post borders reopening and resumption of tourism activities), retail (19.4% yoy; higher footfall) and others (+12.3% yoy). Beshom’s 1QFY23 GP margin also declined to 41.7% (-0.6% yoy) due to higher product and logistic costs as well as the weakening of the RM. This led to its 1Q23 core net profit falling 21.6% yoy to RM5.4m, below expectations at 11.7% of our FY23F estimate and 12.2% of Bloomberg consensus.
Signs of recovery on a qoq basis for wholesale and retail
Post the full reopening of the Malaysian economy and borders from 1 Apr 2022 onwards, Beshom’s 1QFY23 revenue improved 6.6% qoq, driven by higher wholesale revenue (+24.0% qoq) from its pre-price increase “last buy” sales promotion for selected Chinese medicated tonics and cooking wines. While 1Q23 revenue qoq growth for its retail segment remained flat, operating profit margin expanded by 1.3% pts qoq to 6.2%, owing to higher sales contribution from its higher-margin house brands (i.e. immunity-boosting products). We expect the recovery momentum to continue in the coming quarters.
Expecting sequentially better quarters ahead, particularly for MLM
We now expect Beshom’s MLM segment, its key earnings driver, to post stronger results in the coming quarters. This is premised on i) resumption of aggressive recruitment activities through physical events and attractive incentive schemes (typically falls in SepNov), ii) margin expansion on better product mix, iii) its grand 30th MLM anniversary celebration and attractive rewards driving members’ spending (upcoming trip to Istanbul, Turkey), and iv) upcoming major festive sales, i.e. Christmas and Chinese New Year.
Reiterate Add with a lower TP of RM1.60
We cut our FY23-25F EPS by 16.0-19.7% to reflect lower revenue and margin assumptions due to rising input costs. In tandem with our EPS cuts, our TP drops to RM1.60 (11.1x CY23F P/E, 1.5 s.d. below its 5-year mean P/E of 19.2x). We like Beshom for its appealing dividend yield of 8-9% (FY23-25F) and attractive valuation (currently trading at 9.8x CY23F P/E, a discount of 36% to the MLM sector’s 5-year mean P/E of 15.4x). A strong recovery in MLM membership is a key re-rating catalyst. Downside risks: weaker-than-expected recovery in agent count and slowdown in direct sales.