The imposition of more stringent rules on member recruitment for multi-level marketing companies has taken a heavy toll on Hai-O Enterprise Bhd’s earnings.
The company’s net profit plunged 57% to RM7.84 million in 1QFY11 from RM18.52 million a year ago due to lower contribution from the multi-level marketing (MLM) division.
Revenue fell 63% to RM54.75 million from RM148.57 million. Pre-tax profit was RM10.79 million, down 59% from RM26.28 million a year ago. Earnings per share shed to 3.91 sen compared with 22.17 sen.
“The effects of applying stringent rules on new members’ recruitment and enhancement of stockists’ management and professionalism since last financial year still need a longer time for the division and distributors to realign their business strategies,” it said.
Hai-O said despite the increased external sales of the wholesale division, pre-tax profit was lower compared to the preceding year’s as a result of lower profit contribution from its inter-segment sales.
However, the group’s operating profit margin in the current quarter increased by about 2% from a year ago, mainly due to higher margin products sales, the weakening of the US dollar against the ringgit which has contributed to reducing imported costs while operating efficiency improved.
Hai-O share price has been on a steady decline from the peak of RM4.76 in March to a low of RM2.98 on Sept 1 amidst rising concerns on the more stringent rules on member recruitment.
The fall in share price did not bode well for the company as Hai-O aborted its proposed share placement scheme in July.
Hai-O was once a high flying stock that surged above RM10 buoyed by analysts’ bullish view on the company’s great growth potential riding on the domestic consumption and overseas expansion, for instance in Indonesia.
This article appeared in The Edge Financial Daily, September 30, 2010.
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