• Maintain BUY and MYR0.93 TP, 25% upside with c.5% FY24F (Feb) yield. DXN’s 1QFY24 results met expectations with robust topline growth on the back of positive traction in key markets more than offsetting the effects of a higher effective tax rate (ETR). DXN’s current valuation is attractive, considering its solid growth prospects underpinned by new market expansion and insulation from the rising costs. The superior profit margins and ROE are a strong testament to its entrenched fundamentals and well-crafted business model.

• DXN’s 1QFY24 results were within expectations. Core net profit of MYR87m (+6% YoY) met 26% of our forecast. No consensus comparison is currently available due to a lack of coverage by other research houses. The group declared a first interim DPS of 0.8 sen which is in line with our estimate. Post-results, we make no changes to our earnings forecasts and DCF-derived TP of MYR0.93, which is inclusive of a 2% ESG discount. Our TP implies 14x P/E FY24F which is below the sector average P/E.

• Results review. YoY, 1QFY24 revenue surged 18% to MYR424m, largely driven by robust fortified food & beverages (FFB) products sales in key markets such as Latin America and India. That said, 1QFY24 PBT only grew by 8% to MYR124m as 1QFY23 was aided by a higher net reversal of members’ bonus (MYR16.6m vs MYR3.0m). Meanwhile, 1QFY24 ETR was 4.9ppt higher at 34.9% (in line with our FY24F ETR assumption) to cap core net profit growth at 6% due to the tax on repatriation of funds back to Malaysia and higher tax rates in some of the fast growing markets. QoQ, 1QFY24 revenue was 5% higher thanks to the positive traction in key operating markets. This, coupled with the normalisation of ETR and favourable FX swing, propelled a 34% QoQ jump in core net profit.

• Outlook. Notwithstanding the challenges in a slowing global economy growth and heightened inflationary pressures, we see DXN in a strong position to deliver sustainable growth. This will be underpinned by the growth in distributor member base as the group continues to strengthen its presence in key existing markets and at the same time makes inroads into high potential new markets. In addition, the completion of the latest phase of upstream expansion bodes well for the group to capture the ensuing rising demand and introduce more innovative products to attract higher sales. On top of that, we also see DXN less affected by any hike in costs thanks to its internal integrated production facilities which account for >90% of the group’s revenue and command higher GPM of >80%.

• Risks to our recommendation include major delays in expansion plans and unfavourable regulatory changes.

Source: RHB Research - 31 Jul 2023