DXN Holdings Bhd’s current valuation is attractive, considering its solid growth prospects underpinned by new market expansions, said RHB Investment Bank Berhad (RHB IB).
In its Initiating Coverage note, the research house initiates a BUY call and RM 0.93 TP (DCF), 40% upside and c.5% FY24F (Feb) yield.
Its TP implies 14 times P/E FY24F, below the sector average and it gives 2.9 ESG score, in which the research house apply a 2% discount to reach its TP.
“The superior profit margins and ROE are strong testament to its entrenched fundamentals and well-crafted business model.
“This entails an extensive portfolio of popular health and wellness-oriented consumer products, complemented by an integrated upstream set-up and expansive global distribution network.
RHB IB noted that DXN has expanded its product offerings to a diversified portfolio of health and wellness consumer products across a
range of natural health ingredients, which include its initial expertise Ganoderma to Spirulina and Cordyceps, among others.
“These products are believed to be able to improve body and immune functions. Hence, they have been well received by the markets. Meanwhile, more than 60% of DXN’s sales are derived from fortified F&B (FFB) products, which are fast-moving consumer goods (FMCG).”
Other than that, the bulk of DXN’s products are produced internally by its integrated production facilities, including two R&D centres,
seven cultivation facilities, and 12 manufacturing plants.
The facilities have been instrumental in supplying a stable and differentiated source of products to meet growing demand as well as maintain strict quality and cost controls standards.
“The group has gained multiple recognitions for its execution and production processes whilst sustaining consistently high GPMs at more than 80% in FY21-23,” it said.
The research house also pointed out DXN’s nimble direct selling strategy that requires minimal capex and recurring expenses for market expansion.
“Additionally, its One World One Market is a standardised and flexible compensation plan to primarily reward sales with zero upfront or annual fees charged to members.
“Consequently, it is able to expand quickly into new markets and grown the number of DXN members at a 3-year CAGR of 15.4%.
It added: “To sustain the robust earnings growth momentum, DXN has set its sights on expanding into new markets including Argentina, Brazil, Niger, Algeria, and Ghana, which will be in stages. Capacity expansion is ongoing to support the ensuing increase in demand.”
“On top of that, we believe product innovation and technology enhancement will remain the other key imperatives for DXN moving forward.”
RHB IB said the key risks include major delays in expansion plans and unfavourable regulatory changes.
