Review

• Beshom Holdings Bhd’s (BESHOM) 1HFY24 core earnings of RM4.7mn came in below expectations, accounting for 31% of ours and 30% of consensus’ full-year forecasts. The variance was due to lower-thanexpected retail and MLM sales.

• The group declared a singer-tier interim dividend of 1.5sen (2QFY23: 3.0sen)

• MLM. The challenging economic condition has dampened the consumer confidence and diminished the purchasing power, leading members to further scale down their expenditure on non-essential items. As a result, the MLM segment registered a revenue of RM13.3mn (-35.2% YoY).

• Wholesale. The segmental revenue increased to RM14.7mn (+15.4% YoY), which was driven by the effective promotion sales of selected Chinese medicated products and cooking wines. Concurrently, with higher sales of greater profit margin items, the segmental EBIT rose to RM2.8mn (+49.5% YoY).

• Retail. The retail segment posted a revenue of RM8.5mn (-11.0% YoY), primarily attributed to weak demand for house brand products. Meanwhile, the demand for premium healthcare supplements experienced adverse effects due to weakened purchasing power, leading consumers to opt for lower-priced substitute products. The profit margin faced further erosion due to increased marketing cost for promotion campaigns amidst sustained low demand. The EBIT for retail segment was RM0.2mn (-73.2% YoY).

Impact

• We keep our FY24/FY25/FY26 earnings forecasts, pending management guidance on future sales outlook and ASP trend.

Outlook

• MLM. BESHOM’s MLM segmental outlook remains challenging. It is mainly due to the headwinds of inflationary pressure that still persist, hence weakening the spending power of its members. Customers are more willing to spend on small-ticket items, which are relatively low priced (Haircare, Oral care and F&B products). We remain cautious on the MLM’s growth prospects. However, we expect sales will gradually improve with better outlook in 2HFY24.

• Wholesale. The wholesale segment expects to grow gradually in the 2HFY24, driven by its sales for festive seasons. Meanwhile, the group started to negotiate with overseas countries (China, South Korea and Saudi Arabia) for potential new orders.

• Retail. The outlook for the retail segment is projected to remain stagnant, as customers exercise prudence amid economic uncertainties. Meanwhile, we expect they will gravitate towards purchasing substitute products at more affordable prices.

Valuation

• We maintain Sell on Beshom with unchanged TP of RM0.71/share based on 13x CY24 EPS, pending management guidance on forward sales and selling price.

Source: TA Research - 22 Dec 2023