DXN Holdings Bhd (DXN) is in a solid position to drive sustainable growth, having delivered consistent earnings with healthy cash flow generation post-listing, according to RHB Investment Bank (RHB IB).
“This will be driven by the growth in distributor member base as the group continues to strengthen its presence in key existing markets and at the same time, make inroads into high potential new markets.
“In addition, the completion of the latest phase of upstream expansion bodes well for the group to capture the ensuing rising demand and introduce more innovative products to attract higher sales.
“DXN is looking to diversify its fortified food and beverage (FFB) portfolio by rolling out more convenient ready-to-eat (RTE) and ready-to-drink (RTD) products to further expand the addressable markets.
“On top of that, we also see DXN less affected by any hike in costs, thanks to the internal integrated production facilities which account for more than 90% of revenue and command high gross profit margin (GPM) of 80%,” in its Malaysia Results Review today (Jan 26).
Therefore, the research house maintained its BUY call and TP of RM0.93, 40% upside and 6% FY25F yield.
RHB IB said DXN’s 9MFY24 results met expectations thanks to steady growth in key existing markets and consistent operational efficiency.
“Core net profit of RM250 million, an increase of 6% year-on-year (YoY) accounted for 75% of both ours and consensus’ forecasts.
“Post results, we make no changes to our forecasts and DCF-derived RM0.93 target price (TP), an inclusive of a 2% ESG discount). Our TP implies 12x P/E FY25F – below the sector average to take into account the highly-regulated direct selling industry DXN is in,” it said.
Year-on-year, DXN’s 9MFY24 revenue rose 11% to RM1.3 billion, driven by robust sales growth of key markets in Latin America and India on
the back of increased members’ activities and product promotion as well as new product launches, the research house said.
“That said, core net margin slipped 1ppt to 17.4%, likely due to the lower reversal of members’ bonus and gross profit margin (GPM) dilution from higher contribution of FFB products.”
Quarter-on-quarter, 3QFY24 revenue inched down 2% to RM450 million as sales in key markets, including Peru and Bolivia, normalised from the pre-price increase frontloading in 2QFY24.
“Correspondingly, 3QFY23 core net profit fell 2% to RM81 million. The third interim dividend per share (DPS) of 0.9 sen was declared, bringing 9MFY24 DPS to 2.6 sen – representing a 55% payout ratio,” it said.
It added: “We continue to like DXN for its robust growth prospects backed by an effective business model. Current valuation is attractive as we foresee stable earnings delivery and successful new market penetrations to drive a rerating.
“In addition, the sturdy balance sheet should continue to support capex requirement and generous dividend payout.”
The risks to RHB IB’s recommendation include major delays in expansion plans and unfavourable regulatory changes.
