Bursa Malaysia Stock Watch

DXN - Hidden gems among Malaysia MLM companies

kltrader
Publish date: Fri, 30 Jul 2010, 10:58 AM
kltrader
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Following Message
DXN Holdings Berhad or "DXN" is mainly involved in the cultivation, manufacturing and marketing of the health food supplements, with its revenue mainly derived from its Ganoderma business. The Group's earnings improved significantly in 1Q2010 with its net income more than double y-o-y to RM10.1m. By ascribing 8.7x PER to our FY2011 EPS forecast, we value DXN at RM1.11. Despite being a Non Rated stock, our target price indicates potential 41.4% upside.

Highlights
  • Ling Zhi or Ganoderma healthcare product ? DXN is a multi-level marketing (MLM) company which was established in 1993. Founded by Dato' Dr. Lim Siow Jin, the Company's range of healthcare product is mainly made from "Ling Zhi mushroom" or Ganoderma. DXN's health product has achieved Malaysian Organic Scheme, MS ISO/IEC 17025, ISO 14001, ISO 9001 and TGA recognition.
  • Owns integrated factory of 28,000 square feet - DXN owns an in-house production line to process Ganoderma products. Its fully owned subsidiary, DXN Pharmaceutical Sdn. Bhd is an integrated factory of 28,000 square feet.
  • Strong 1Q2011 results - DXN recorded revenue of RM67.8m (up 4.66% y-o-y and 12.74% q-o-q) in 1Q2011. The higher revenue y-o-y is mainly caused by higher revenue contributed from multi-level marketing segment. However, net profit in 1Q2011 surged to RM10.1m (up 101.04% y-o-y and 96.60% q-o-q). The significantly higher net profit was attributed to the higher profit margin due to cost efficiency from the multi-level marketing segment.
  • Gross dividend yield of 7.64% expected - DXN has declared gross interim dividend of 2 sen per share in 1Q2011. As compared to gross interim dividend of 0.75 sen announced last year, the dividend has more than doubled in the absolute value. We have assumed that DXN should be able to pay higher dividend of 6 sen in FY2011, translating into 7.64% gross dividend yield.
  • Target price of RM1.11 - By ascribing our discounted industry average PER of 8.7x (for Malaysia listed MLM companies) to our forecasted EPS of 12.73 sen for FY2011, we value DXN at RM1.11. In our opinion, DXN is attractive for investors seeking dividend-paying stocks with plenty of opportunities for growth overseas.
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