Maybank Investment Bank (Maybank IB) anticipated a better sequential earnings once the full impact of the price hikes is reflected across all its countries of operations, alongside stock replenishments at DXN Holdings Bhd’s key markets such as Peru and Bolivia.
“(In addition, the completion of several production facilities in China, India and Dubai, will also continue to aid further inroads into Latin America going forward,” it said in its research note today (Jan 29).
The research house made no changes its earnings estimates pending analyst briefing with DXN, BUY call and target price (TP) of MYR0.90, based on 11x CY24E price-earning ratio (PER).
It said, DXN’s third quarter financial results ended on November 30 2024 (3QFY24) is in line with expectation, with a 14% increase core net profit year-on-year (YoY) to RM78 million and 2% increase quarter-on-quarter (QoQ) resulting in 7% increase of 9MFY24 core net profit to RM245 million.
“The latter reflected 72% and 74% of our estimates and consensus full-year earnings estimates. A third interim dividend per share (DPS) of 0.9 sen, making 9MFY24 dividend to date to a total of: 2.6 sen with a dividend payout ration (DPR) of 55%.
“QoQ, DXN’s 3QFY24 revenue eased 2% mainly due to 2QFY24 front loading activities that occurred in Peru and Bolivia before product price hikes (+8%-9%) took place in September 2023, and slower inventory exports to external distributors in the Middle East,” Kenanga said.
It added, the group’s 3QFY24 earnings before interest and taxes (EBIT) margin grew by 0.6 ppts QoQ from lower donation expense.
“YoY, DXN’s growing presence in Latin America and India drove revenue growth, an increase of 2.5% YoY while lower effective tax rate of 32%, a decrease of 2.8ppts YoY led to core net profit growth of 14% YoY.”
The risks of Maybank IB’s call are high concentration of sales in Latin America poses a risk to earnings if any country-specific risks arise and sharp depreciation in USD/EUR against MYR will also affect its earnings as more than 90% of sales are denominated in foreign currency.
