PublicInvest Research

Author: PublicInvest   |   Latest post: Tue, 28 Jan 2020, 3:43 PM


DKSH Holdings (M) Berhad - Earnings Affected By Project Cost

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DKSH Holdings (M) Berhad (DKSH) reported a 17% drop in 2QFY19 net profit to RM11.7m, dragged by higher finance cost incurred due to Auric’s acquisition and additional consulting cost related to DKSH’s growth acceleration programme. Cumulative 1H19 earnings were below estimates, accounting for 28.1% of our and 27.8% consensus’ full year forecasts. Given the higher-than-expected finance cost and cost of growth acceleration programme, we trim our earnings forecast for FY19F by 22%. After factoring in Auric Malaysia’s contribution, we expect the earnings contribution in FY20F-FY21F to be muted, offset by the finance cost. We re-iterate our Neutral call on DKSH and our TP of RM2.60 based on our FY20F EPS pegged to a 9x PER (based on our PER band in Figure 1).

  • 2QFY19 revenue grew by 9.1% YoY to RM1.5bn. Growth in revenue was mainly due to the contribution from Auric Malaysia worth RM109.4m and supported by the greater sales from existing clients thanks to the festive sales related to the Hari Raya holiday. Marketing & distribution segment reported a 17.5% growth YoY due to Auric Malaysia’s contribution. Meanwhile, the logistics and others segment recorded a growth of 0.9% and 17% YoY respectively.
  • 2QFY19 operating profit increased by 32.5% YoY. Marketing & distribution segment reported an operating profit of RM16.2m, a 71.6% jump YoY predominately due to the contribution from Auric. The growth in this segment was slightly offset by the additional cost of RM4.5m from the growth acceleration programme and amortization of intangible assets. The Logistic segment recorded a 5.1% increase YoY to RM11.7m due to better operational efficiencies. On the flip side, the Others segment had an operating loss of RM0.3m despite recording higher revenue growth due to unrealized derivate losses recorded for interest rate swap.
  • Future outlook. We expect DKSH to benefit from its in-house growth efficiency project as the project focuses on short term improvements and long-term sustainable growth while reducing operational costs to improve margins. We gather that majority of the costs relating to the growth acceleration project were incurred between 4Q18 till 2Q19. Therefore, we do not expect any one-off costs relating to the project moving forward.

Source: PublicInvest Research - 3 Sept 2019

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