KUALA LUMPUR (Nov 22): Hong Leong Investment Bank (HLIB) upgraded its call for DKSH Holdings (Malaysia) Bhd from “hold” to “buy” with a target price (TP) of RM5.50, after DKSH Holdings (Malaysia) achieved a core net profit of RM27.3 million in its third quarter of financial year 2023 (3QFY2023), reflecting an increase of 21.7% year on year (y-o-y).

This earnings contributed to a total of RM97.5 million in core net profit for the first nine months ended Sept 30, 2023 (9MFY2023), reflecting a 14.8% increase y-o-y.

According to a note on Wednesday, HLIB stated that its 9MFY2023 results beat its and consensus’ projections, accounting for 83% and 88% of full-year forecasts, respectively.

“The key discrepancy to our forecast was lower-than-expected finance costs and tax expenses,” it said.

HLIB said the TP was derived based on a price-to-earnings (PE) multiple of 6.7 times on DKSH Holdings (Malaysia)’s FY2024 earnings per share (EPS) of 82.1 sen.

"With the recent retracement in share price, our TP now reflects a comfortable upside of 20.4%. Consequently, we are upgrading our rating to ‘buy’, from ‘hold’ previously,” it added.

Meanwhile, the research house noted that DKSH Holdings (Malaysia)’s core net profit decreased by 6.4% quarter-on-quarter (q-o-q), primarily due to a higher proportion of operating expenses, driven by growth in logistics and selling expenses. Revenue remained nearly flat (-0.7%) q-o-q, as the positive performance in the healthcare segment (+2.5%) was offset by a decline in the consumer goods segment (-3.2%).

Year on year, DKSH Holdings (Malaysia)’s healthcare segment reported a 3.7% decline in revenue, attributed to the absence of a non-recurring hospital tender in 3QFY2023, resulting in a marginal overall revenue decrease of -1.1%, said HLIB.

Despite this, core net profit expanded by 21.7%, supported by a better margin mix in the healthcare segment and a lower effective tax rate of 16.5%.

Notably, on a year-to-date basis, the company’s revenue increased by 3.7%, driven by improved contributions from all three segments, including consumer goods, healthcare, and others.

“Both the consumer goods and healthcare segments were supported by organic business growth, while the ‘others’ segment was lifted by strong sales and the resumption of batter supply for its Famous Amos business,” HLIB added.

With an optimistic outlook, HLIB’s forecasts for the fiscal year 2023–2025 are revised upwards by less than 3%, primarily to incorporate a lower finance cost assumption.

At the time of writing, DKSH Holdings (Malaysia) was trading five sen or 1.06% lower at RM4.65, giving it a market capitalisation of RM 736.26 million.