DXN Holdings Bhd (DXN, stock code: 5318) will be making its debut  on Bursa Main Market today. The company is principally involved in  cultivation, manufacturing and marketing of health food  supplements. DXN is diversifying its portfolio both locally and  internationally. As a result, we expect DXN to report stronger  growth in the next 2-3 years. We forecast DXN to register net  earnings of RM330.9m and RM385.6m for FY2/24 and FY2/25  respectively, representing growths of 20.1% and 16.5% YoY. BUY  with a TP of RM1.06 based on 16x PER (average PER for its regional  peers with similar market capitalisation). Our BUY  recommendation is premised on (i) growing demand of health food  supplements globally; and (ii) DXN’s aggressive marketing of its  expanding range of products.

The company operates a vertically integrated supply chain with in-house research, cultivation and manufacturing functions. DXN  carries out research through an in-house team of about 81 staff across two research facilities in Malaysia and China.

DXN operates six cultivation facilities and 10 manufacturing facilities across Malaysia, China, India, Indonesia and Mexico. The company also have a cultivation and two manufacturing facilities in the pipeline which we expect to complete by 2QCY23.

In terms of marketing network, DXN has 79 sales branches locally and overseas to distribute goods to members and via partnerships with 12  exclusive external distribution agencies. The company has over 14.9m  registered members and over 3.6m active members. DXN plans to open up a new sales branch or appoint an external distribution agency to increase its marketing network globally.

The company has rolled out its web portal (eWorld) and mobile applications (DXN app and DChat app) where members are able to order products, monitor sales and track rewards such as special promotions, their month-to-month bonus information, their ePoints balance and transaction history. DXN has integrated the eWorld web  portal with its regional websites, such that branches in foreign jurisdictions are able to publish and disseminate marketing content and individual members can drive sales and engage non-members by creating their own personal shopfront webpages.

The health-oriented and wellness sector within the direct selling industry is growing fast globally on the back of increasing propensity to self-medicate and adopt preventive solutions among consumers.  According to Frost & Sullivan, the direct selling markets of Fortified food and beverages (FFB), Health and dietary supplements (HDS) and  Personal care and cosmetics (PCC) products are forecasted to grow at a CAGR of 10.1%, 3.6% and 2.0% respectively between 2022 and  2026. DXN’s balance sheet is strong with a net cash hoard of RM265m  as at FY2/23.

Source: Rakuten Research - 19 May 2023

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