RHB Investment Bank Bhd (RHB Research) maintained its BUY call on DXN Holdings Bhd with a lower target price of RM0.55 from RM0.60, implying a 15% upside and around 6% FY27F dividend yield. The research house said the company’s 1QFY27 results came in below expectations due to weaker sales caused by unfavourable foreign exchange movements and distributors bringing forward purchases ahead of a price increase.
DXN’s core net profit fell 20.8% year-on-year to RM58.5 million during the quarter, while revenue declined 7.5% year-on-year and 6.7% quarter-on-quarter to RM443 million. RHB Research attributed the weaker performance to softer operating leverage as the group continued carrying a higher fixed-cost base alongside expenses from its upstream and downstream expansion initiatives.
Despite the near-term pressure, RHB Research believes the sales slowdown will be temporary as distributor orders have started recovering since June. The research house added that the company’s around 10% average price increase could provide further support to revenue growth once sales volumes normalise.
However, RHB Research expects DXN’s earnings recovery to be gradual as new investments, including the Gua Musang upstream coffee operations, new manufacturing facilities and overseas market expansion, require time to scale. The research house noted that some new factories could take two to three years to reach profitability.
Following the results, RHB Research lowered its FY27F to FY29F earnings forecasts by 14%, 10% and 7% respectively, mainly due to higher fixed costs and expansion-related expenses. It expects DXN’s net margin to ease to 13.6% in FY27F before improving gradually as operating leverage strengthens.
As of 10.05 am, the stock price slips 2.11% to RM0.465.
