OSK Research is positive on Hai-O Enterprise Bhd’s earnings prospects despite the sluggish economic conditions mainly due to the company’s exposure to health food, which is recession-proof.

The research house said despite the expected negative impact of a weakening ringgit on its third quarter ending Jan 31, 2009 earnings, Hai-O should be able to weather the economic downturn relatively well given its exposure to healthcare products, which are considered defensive.

“While we are concerned over the impact of the depreciating ringgit versus the US dollar on group earnings given that 40% of Hai-O’s raw materials are transacted in US dollar, our house view is that the ringgit will strengthen to RM3.45-RM3.50 and RM3.40-RM3.45 this year and in 2010 respectively. Based on our analysis, a five-sen drop in the ringgit against the dollar would cut our forecast earnings by 0.8%,” it added.

It noted that Hai-O remained profitable even during the last Asian financial crisis. Also, the stock offers a compelling dividend yield exceeding 10%.

Logo from Hai-O.