• Maintain BUY and TP of MYR0.93, 49% upside with c.6% FY25F (Feb) yield. DXN Holdings’ FY24 results are in line with expectations, owing to the robust growth in its key markets including Latin America and India. Going forward, we expect earnings growth to be underpinned by the continuous growth in key markets whilst its recent entry into Brazil should bear fruit in the medium term. The stock’s valuation is attractive – in view of its proven business model, expansion plan and sturdy balance sheet.

• FY24 results are within expectations. Core net profit of MYR335m (+11% YoY) accounts for 101-102% of our and consensus’ forecasts. Post-results, we make no material changes to FY25-26 forecasts, and we introduce our FY27F earnings (+14% YoY) in this report. Our DCF-derived TP remains at MYR0.93, (inclusive of a 2% ESG discount), which implies 12x FY25F P/E. The valuation is below the consumer sector average, to take into account the highly regulated direct selling industry DXN is in.

• Results review. FY24 revenue jumped 13% YoY to MYR1.8bn, primarily spurred by the robust growth in key markets including Latin America and India, thanks to engaging member activities and marketing events, as well as new product launches. Meanwhile, FY24 EBITDA grew 8% YoY to MYR537m, with the margin slipping by 1.2ppt to 29.8%, mainly due to a lower GPM (-1.7ppt) on unfavourable sales mix and personnel expenses incurred to support expansion. On a QoQ basis, 4QFY24 revenue climbed 5% to MYR471m from frontloading activities in Mexico before it raised prices in March. However, 4QFY24 EBITDA inched down by 1%, mainly on a lower GPM and higher staff costs. That said, a lower ETR more than offset the impact and 4QFY24 core net profit was 5% higher QoQ, at MYR85m. A fourth interim DPS of 1 sen was declared, bringing the FY24 DPS payout to MYR0.036, translating to a payout ratio of 57%.

• Outlook. We expect key markets to continue contributing strongly, supported by DXN’s effective marketing strategy and complemented by the new product launches. Moreover, the capacity expansion in key markets should also bode well in strengthening sales and boosting efficiency. In addition, the price adjustments made in different markets should also support margins, notwithstanding the volatile commodity prices. Meanwhile, we also look forward to the results of its entry into Brazil, leveraging on DXN’s established existing network in Latin America. We expect significant earnings contribution from this venture in 3-4 years’ time.

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

Source: RHB Research - 24 Apr 2024