Review

• Beshom Holdings Bhd (Beshom)’s 1HFY25 core net profit of RM5.3mn came in below expectations and representing 30% and 32% of our and consensus' full-year estimates, respectively. The deviation was primarily attributed to higher-than-expected import costs.

• 1HFY25 revenue rose 2.2% YoY to RM74.7mn, driven by an 8.1% YoY increase in the multi-level marketing (MLM) division. However, net profit declined 4.5% YoY to RM4.6mn, mainly due to weaker performance in the wholesale and retail segments.

• MLM. In 2QFY25, EBIT improved to RM1.4mn, compared to a loss of RM0.02mn in the same period last year, supported by a 12.1% YoY sales increase to RM15.0mn and ongoing cost optimisation efforts. For 1HFY25, revenue rose 8.1% to RM27.8mn, while EBIT surged more than 9-fold to RM2.8mn, driven by higher sales of PB Thera Series products, improved inventory management, and better resource utilisation.

• Wholesale. In 2QFY25, revenue grew 15.1% YoY to RM17.0mn, driven by contributions from a new range of wellness products. However, EBIT decreased by 25.5% YoY to RM2.1mn, primarily due to higher import costs and an unfavourable sales mix. For 1HFY25, revenue slightly declined by 2.3% YoY to RM28.3mn, as higher sales of new products in 2QFY25 partially offset weaker sales of Chinese medicated tonic and vintage tea. Due to lower turnover and higher import costs, EBIT fell 49.7% YoY to RM2.4mn, resulting in a decline in EBIT margin by 8.1%-pts to 8.6%.

• Retail. Turnover in 2QFY25 declined 7.6% YoY to RM7.8mn, reflecting a discouraging response to the half-yearly member sales campaign and cautious consumer spending on non-essential items like premium health supplements. The segment recorded a loss of RM0.3mn, compared to an EBIT of RM0.2mn in the previous year, mainly due to reduced contributions from house brand products and higher advertising and promotional (A&P) expenses. For 1HFY25, revenue remained stable at RM15.4mn, but the segment's loss widened to RM0.5mn from RM0.1mn a year ago, driven by lower sales of higher-margin products and increased operating costs.

• The group declared a single tier interim dividend of 1.5sen/share, which is aligned with 2QFY24 of 1.5sen/share.

Impact

• We have revised our sales assumptions downward by 5.5%-7.2% for FY25- 27F, reflecting weaker demand in the wholesale and retail segments. Additionally, due to ongoing cost pressures, we have increased our projections for selling and distribution expenses in these divisions by 4.6% for FY25F. As a result, our earnings forecast for FY25-27F has been reduced by 4.4%-29.5%.

Outlook

• Management remains focused on cost-control measures to enhance profitability. With restrategised marketing efforts and ongoing promotional activities, we believe the group is well-positioned to improve its sales performance during the upcoming Chinese New Year period.

Valuation

• Following revisions to our FY25-27F earnings estimates, we have lowered Beshom’s TP to RM0.84/share (previously: RM0.96/share) based on 15x CY25 EPS. Given limited upside potential and the absence of major catalysts, we have downgraded the stock to SELL from Hold.

Source: TA Research - 23 Dec 2024