DXN Holdings Bhd fundamentals and prospects is reassuring, with upside potentials of dividend payouts, according to RHB Investment Bank (RHB IB).
In its Malaysia Visit note, the research house said post its site visit to DXN’s China’s operation, it was reassured and continue to like the group for its attractive valuation and exciting earnings growth prospects.
“We highlight the upside potential of dividend payouts (formal policy: 50% of net profit), in view of its sturdy balance sheet and strong cash flow generation.
“We also look forward to contributions from upcoming key ventures into the Argentina and Brazil markets,” it said today (Nov 21).
Therefore, RHB IB maintains its BUY ratings and TP of 93 sen, 39% upside with 5% FY24F (February) yield.
It also noted that post visit of DXN’s manufacturing plants and cultivation facilities in Ningxia, China that the group’s move to diversify manufacturing source makes sense for several factors including access to cheap raw materials and higher cultivation yields.
“DXN chief executive officer expressed optimism on DXN’s growth prospects highlighted the upside potential of dividend payouts, given its strong balance sheet.
“Its senior independent director Datuk Noripah Kamso pledged to uphold the high standard of corporate governance and foresees DXN to be further institutionalised going forward.”
On private equity shareholder, KV Asia, an exit is not on the horizon – notwithstanding the lapse of the moratorium on Nov 19, as the firm believes that this counter is currently undervalued, RHB IB noted.
The research also said that the visit showcased DXN’s biotechnological expertise, which has been instrumental in supporting its brand equity, popular products with high efficacy and cost efficiency (c.80% GPM, with more than 90% of products manufactured in-house).
“The China market will serve as a vital medium-term catalyst, with DXN targeting to file the application for a direct selling license in 2 to 3 years once all of the requirements are met.
“Apart from expansion into new markets, its other growth strategy include the plans to diversify its Fortified Food & Beverages (FFB) portfolio by rolling out more convenient ready-to-eat (RTE) or ready-to-drink (RTD) products to further expand the addressable markets.
RHB IB said the downside risks of its recommendation include unfavorable regulatory changes and major delays in expansion.
