Maybank Investment Bank Berhad (Maybank IB) believes that DXN Holdings Bhd’s 4QFY24E earnings may improve in tandem with sales volume recovery in Peru and Bolivia.
That said, their FY24E-FY26E earnings are trimmed by 3% to 4% given expectations for slower sales of its higher margin HDS category and slower sales growth in its ASEAN markets.
Maintain BUY with a lower TP of MYR0.86, on unchanged 11x CY24E PER
Temporary sales volume impact after price hikes Sales volume at both Peru and Bolivia has recovered, following adverse impact in 3QFY24 due to price hikes of +8% in Sep 2023.
Among DXN’s top 10 markets, India, Mexico, Malaysia and the Middle East will go through similar price adjustments by end-FY24.
With growing concerns on consumer disposable income globally, DXN’s ability to seamlessly passthrough costs to consumers is becoming difficult, as the group plans for a narrower price adjustment of c.+4% in FY25 (vs. annual product price increases of 5%-8% historically).
FFB category remains key driver to group sales
In 3QFY24, DXN’s FFB category remained the largest revenue contributor at 70% (+6.1 ppts YoY) of group sales, followed by HDS at 20% (-4.5 ppts YoY) and PCC at 6% (-0.7 ppts YoY).
Maybank IB believes that FFB sales will continue to grow at the expense of both HDS and PCC categories as its lower price point partially shields it from potential slowdown in consumer spending, along with DXN’s focus on driving FFB sales in both existing Latin American countries and its new markets (eg. Brazil, Argentina, Africa).
Lower FY24E-FY26E earnings estimates by 3%-4%
Maybank IB trimmed their FY24E/FY25E/FY26E earnings by -4%/-4%/-3% upon imputing for (i) slower sales in DXN’s higher margin HDS category, (ii) general expectation for softer sales volume in several top 10 markets (eg. Middle East, Malaysia, Thailand, Morocco), (iii) and a lower tax rate of 34% (vs. 36% previously).
Separately, the group plans to start operations in Brazil by Mar 2024 which will further expand its presence in Latin America.
