DKSH’s 2QFY23 net profit fell 26.7% YoY to RM23.8m, mainly attributable to the decline in sales from the consumer goods segment. Cumulative 1HFY23 net profit of RM60.8m was above our but broadly in-line with consensus expectations, accounting for 60% and 55% of our full-year forecast respectively. The discrepancy in our estimates was mainly due to the stronger-than-expected sales from the healthcare segment. We are keeping our earnings forecast unchanged however, as we are expecting a weaker 2H with 3Q being a slower quarter due to seasonality and softer consumer spending. That being said, we maintain our Neutral call on DKSH with an unchanged TP of RM5.45 based on 8x FY24F EPS.

• 2QFY23 revenue increased by 4.2% YoY to RM1.82bn. The growth in revenue was mainly driven by the stronger performance from the healthcare segment (+12.2% YoY), due to new clients secured and organic growth from existing clients. A solid performance of the Healthcare segment had helped to offset the decline in sales from the consumer goods segment (-1.7% YoY), due to the timing of festive spending with Hari Raya starting earlier in 2023.

• 2QFY23 net profit fell 26.7% YoY to RM23.8m. Despite the increase in revenue, DKSH reported a lower net profit dragged by the higher operating cost and the unfavourable sales mix from the consumer goods segment. As a result, DKSH’s EBIT margin decreased by 0.7 ppts to 2.1% (2QFY22: 2.8%).

• Outlook. Going into 2HFY23, we foresee DKSH to post weaker earnings in 3QFY23 given the absence of major festive spending before recovering in 4QFY23. While short-term outlook is expected to be challenging with weakening consumer spending due to the high cost of living, we believe that the group is poised to benefit from the growing middle class in Malaysia and the trend towards outsourcing, thanks to DKSH’s position as the leader in the Market Expansion Service provider in Malaysia.

Source: PublicInvest Research - 28 Aug 2023