PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 22 Jan 2020, 9:38 AM


DKSH Holdings (M) Berhad - Better Earnings Contributed by Auric

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DKSH Holdings (M) Berhad (DKSH) reported a stronger 3QFY19 net profit of RM10.7m, a 17% increase YoY, underpinned by contribution from Auric Malaysia and the organic growth of existing clients. Cumulative 9M19 earnings were below estimates, accounting for 67.4% of our and 59% consensus’ full year forecasts. The shortfall in our forecast was mainly due to lower sales from the existing business of Marketing & Distribution segment. However, we leave our earnings estimates unchanged as we expect 4Q to be seasonally stronger thanks to the festive spending. Going forward, we anticipate DKSH’s earnings to improve further due to Auric’s synergies and better operational efficiencies coming from its internal project. We re-iterate our Neutral call on DKSH and our TP of RM2.60 based on our FY20F EPS pegged to a 9x PER.

  • 3QFY19 revenue grew by 12.8% YoY to RM1.7bn. Revenue growth was predominately due to the positive contribution from Auric Malaysia’s business as well as the on-going organic growth of existing clients and new clients secured back in 4QFY18. Marketing & Distribution segment reported a 10.9% growth YoY after incorporating Auric’s contribution. The logistics segment recorded a 14.7% growth YoY due to the organic growth and a change in sales mix. Meanwhile, the Others segment recorded a growth of 5.2% YoY.
  • 3QFY19 operating profit jumped by 85% YoY. Marketing & Distribution segment reported an operating profit of RM13.5m, which translates to a 172.8% jump YoY mainly due to the contribution from Auric. The Logistic segment recorded a 56.4% increase YoY to RM17.4m due to better operational efficiencies. On the flip side, the Others segment continued to record a wider operating loss of RM2.8m despite recording higher revenue growth, dragged by unrealized derivative losses and MFRS16 impact.
  • Future outlook. Moving forward, we expect DKSH’s margins to improve given Auric’s relatively higher profit margins. In addition, its in-house growth efficiency project aims to reduce operational costs should help to enhance margins in the long run. We gather that majority of the costs relating to the growth acceleration project were incurred between 4Q18 till 2Q19. Therefore, we are not expecting DKSH to continue incurring one-off costs from this quarter onwards.

Source: PublicInvest Research - 30 Oct 2019

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