• Maintain BUY and TP of MYR0.93, 40% upside and c.6% FY25F yield. DXN’s 9MFY24 (Feb) results met expectations thanks to steady growth in key existing markets and consistent operational efficiency. We continue to like DXN for its robust growth prospects backed by an effective business model. Current valuation is attractive as we foresee stable earnings delivery and successful new market penetrations to drive a rerating. In addition, the sturdy balance sheet should continue to support capex requirement and generous dividend payout.

• 9MFY24 results within expectations. Core net profit of MYR250m (+6% YoY) accounted for 75% of both ours and consensus’ forecasts. Post results, we make no changes to our forecasts and DCF-derived MYR0.93 TP, (inclusive of a 2% ESG discount). Our TP implies 12x P/E FY25F – below the sector average to take into account the highly-regulated direct selling industry DXN is in.

• Results review. YoY, DXN’s 9MFY24 revenue rose 11% to MYR1.3bn, driven by robust sales growth of key markets in Latin America and India on the back of increased members’ activities and product promotion as well as new product launches. That said, core net margin slipped 1ppt to 17.4%, likely due to the lower reversal of members’ bonus and GPM dilution from higher contribution of Fortified Food & Beverage (FFB) products. QoQ, 3QFY24 revenue inched down 2% to MYR450m as sales in key markets, including Peru and Bolivia, normalised from the pre-price increase frontloading in 2QFY24. Correspondingly, 3QFY23 core net profit fell 2% to MYR81m. The third interim DPS of 0.9 sen was declared, bringing 9MFY24 DPS to 2.6 sen – representing a 55% payout ratio.

• Outlook. Having delivered consistent earnings with healthy cash flow generation post-listing, we see DXN in a solid position to drive sustainable growth. This will be driven by the growth in distributor member base as the group continues to strengthen its presence in key existing markets and at the same time, make 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. DXN is looking to diversify its FFB portfolio by rolling out more convenient ready-to-eat (RTE) and ready-to-drink (RTD) products to further expand the addressable markets. On top of that, we also see DXN less affected by any hike in costs, thanks to the internal integrated production facilities which account for more than 90% of revenue and command high GPM of c.80%.

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

Source: RHB Research - 26 Jan 2024