Date of Report: September 30, 2024
Broker: CGS International Securities
Overview of Beshom Holdings Bhd
Beshom Holdings Bhd reported its 1QFY25 financial results with core net profit amounting to RM2.6 million. This is below expectations, achieving only 17% of the broker’s estimate and 15% of Bloomberg consensus forecast for FY25. The main reasons for this miss are lower revenue and weaker margins.
Financial Performance
1QFY25 Core Net Profit Performance
- Core net profit stood at RM2.6 million, which represents a minor decline of 0.1% year-on-year (YoY) but a significant 30.4% quarter-on-quarter (QoQ) drop.
- Revenue for the quarter dropped by 4.9% YoY to RM33.5 million due to weaker performance in its Wholesale segment and decreased operating margins.
Segment Breakdown
- Multi-Level Marketing (MLM) Segment: MLM revenue grew by 3.7% YoY, supported by aggressive sales activities and product promotions.
- Retail Segment: The retail segment achieved 8.7% YoY revenue growth, driven by stronger sales of house brand products.
- Wholesale Segment: Revenue from this segment decreased by 20% YoY, largely due to lower sales of vintage tea and Chinese medicated tonic. A large portion of customers had likely stocked up in 3QFY24 during a customer incentive trip campaign.
Profit Margins
- Beshom’s core EBITDA margin stood at 13.2% in 1QFY25, down from 13.7% in 1QFY24. Similarly, the net profit margin fell slightly to 6.5%, compared to 7.0% in the previous year.
Economic Outlook and Impact on Beshom
The improving economic activity in Malaysia is expected to support Beshom’s sales and earnings growth for FY25. Factors such as higher private consumption, flexible Employees Provident Fund (EPF) withdrawals, and government cash handouts to lower-income households are likely to bolster demand for Beshom’s products.
The Malaysian economy is forecasted to grow at a rate of 5.2% in 2024, with private consumption projected to rise by 6.9%, according to the CGSI Research Economics team.
Future Growth Prospects
Beshom Holdings is expected to see earnings growth in the coming quarters of FY25. Lower import costs are anticipated to improve operating margins, while growth in private consumption will likely drive demand in both its MLM and retail segments. Key drivers for growth over the next 6-9 months include increased consumer spending fueled by the aforementioned economic factors.
Stock Recommendation and Target Price
CGS International Securities has reiterated its Hold recommendation on Beshom Holdings Bhd, with a target price (TP) of RM0.95, based on a CY25F P/E ratio of 16x, which is 0.5 standard deviations below the company’s 11-year historical mean. At the current price of RM0.895, this offers a potential upside of 6.1%.
Key Risks:
- Weaker-than-expected consumer spending
- Higher input costs
- Intensified competition in the MLM segment
Key Upside Factors:
- Stronger government stimulus and cash handouts targeting lower-income groups
- Emergence of successful products in the MLM segment
Major Shareholders (As of September 30, 2024)
- Estate of Tan Kai Hee: 10.9%
- Akintan Sdn Bhd: 8.8%
- Excellant Communications Sdn Bhd: 5.4%
Financial Forecasts
- Net Profit for FY25F: RM15.53 million
- Core EPS Growth: 41.3% YoY
- Dividend Yield for FY25F: 4.47%
Stock Performance
Beshom Holdings has underperformed the market over the past year, with the stock declining by 12.3% on an absolute basis and by 27.6% relative to the FBMKLCI Index. However, the company offers a stable dividend yield and potential for recovery as economic conditions improve.
