DKSH’s headline net profit for 4QFY21 grew by 88% YoY to RM30.3m, mainly attributable to the improved margin mix from the Marketing and Distribution (M&D) segment. After adjusting for a one-off disposal gain of RM8.5m, DKSH’s reported a core net profit of RM21.8m. For full-year FY21, core net profit of RM82.8m was within our and consensus expectations, accounting for 102% and 104% respectively. We remain optimistic on DKSH’s long term prospects as we believe that the group is poised to benefit from the growing middle class, which should translate to an increase in consumer consumption on FMCG and healthcare products. We maintain our Neutral call and TP of RM6.00 however, as we think the stock is fairly valued, trading near its +1 SD of its 3-year historical average (see figure 1).

• 4QFY21 revenue grew by 2.7% YoY to RM1.59bn, mainly due to the stronger contribution from the M&D segment (+5.7% YoY). The growth was mainly driven by the organic growth of existing and new clients secured as well as the recovery in consumer spending following the relaxation of Covid-19 SOPs. The Others segment’s revenue recorded a 57.1% YoY growth to RM17.6m, as the relaxation of Covid-19 SOPs has helped to lift Famous Amos sales. On the other hand, the Logistics segment saw its revenue slipped by 2.1% YoY, mainly dragged by the exit of a telecommunications client in 4QFY20.

• 4QFY21 net profit grew by +75.1% YoY to RM30.3m. After stripping out the disposal gain of RM8.5m, DKSH’s core net profit came in at RM21.8m (+25.9% YoY, +89.7% QoQ). Core net profit margin improved to 1.4% (4QFY20: 0.7%), which we attribute to stronger sales, favourable sales mix and lower operating expenses from its on-going cost efficiency projects. We understand that while own brands only contributed to less than 10% of the total sales, it enjoys better margins, thereby providing a double digit contribution to DKSH’s profits.

• Outlook. We remain positive on DKSH’s long-term outlook as we believe that DKSH remains well positioned to benefit from the increased spending on consumer goods and healthcare products. In addition, we understand that DKSH is looking to cushion the impact of higher raw material costs (eg: palm oil and dairy), by gradually adjusting ASP and changing its packaging size. This should not have a huge impact on demand given that DKSH’s competitors have also raised their ASP due to higher material costs.

Source: PublicInvest Research - 24 Feb 2022