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Author: PublicInvest   |   Latest post: Wed, 29 Jan 2020, 6:11 PM

 

DKSH Holdings (M) Berhad - Project Costs Dragged Earnings

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DKSH Holdings (M) Berhad (DKSH) reported a 1QFY19 net loss of RM0.6m, -105.7% YoY dragged by a growth acceleration programme with professionals to improve cost efficiency. The growth acceleration programme is currently on going and is expected to complete by 2QFY19. DKSH incurred a RM11.2m cost for the growth acceleration programme. As such, the results came in below our expectation. On a side note, DKSH had just been included back into SC’s Shariah-compliant securities list despite being excluded from the list last year. We trim our earnings forecast for FY19F-21F by 9-13% to factor in the higher costs incurred from the growth and efficiency improvement project coupled with the increase in finance cost, a direct impact from higher bank borrowings. We rollover our valuation base year to FY20F, with a lower TP of RM2.60 (previously RM2.75), based on a 9x PER. Maintain NEUTRAL

  • 1QFY19 revenue grew by 7.4% YoY to RM1.56bn. Growth in revenue was mainly due to the organic growth in all business segments. Marketing & distribution segment reported a 6.6% growth YoY backed by the organic growth from existing clients as well as securing new clients. Meanwhile, the logistics and others segment recorded a growth of 7.9% and 15.6% YoY respectively.
  • 1QFY19 operating profit fell 49.1% YoY. Marketing & distribution segment reported an operating loss of RM0.4m, a 107.4% decline YoY as a result of RM11.2m cost incurred for the growth and efficiency project plus increased warehousing cost. In the meantime, the logistic segment posted a RM12.7m operating profit, a 3% increase YoY supported by improved margin mix. The Other segment posted an operating loss of RM4.1m due to a one-off cost relating to the acquisition of Auric.
  • Completed the acquisition of Auric on 29th March. Works to integrate Auric into the group is currently on going and is expected to contribute positively to DKSH’s results in 2019. However, we expect the overall impact of this acquisition to be muted in the short term due to higher interest expense while positive impact may only materialize in the medium to long term.

Source: PublicInvest Research - 3 Jun 2019

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