• Maintain BUY and MYR0.88 TP, 74% upside and 8% FY26F (Feb) yield. 9MFY25 results met expectations. We believe DXN Holdings' strategies to deepen penetration in existing markets and new market expansion should continue to foster growth, supplemented by new product launches. Valuation is highly attractive considering the effective business model, Brazil expansion as a medium-term growth driver and sturdy balance sheet (9MFY25 net cash: MYR562m or 11.2 sen/share) to facilitate a generous dividend payout.
• 9MFY25 results were within expectations. Core net profit of MYR241m (-5% YoY) accounted for 73% and 72% of our and consensus estimates respectively. Third interim DPS of 1 sen was declared to bring 9MFY25 payout to 2.7 sen (9MFY24: 2.6 sen), in line with our forecasts.
• Results review. YoY, 9MFY25 revenue rose 9% to MYR1.4bn driven by robust growth in key operating markets including Peru, Bolivia and Turkey on the back of successful new product launches. That said, 9MFY25 core net profit fell 5% to MYR241m mainly dragged by the material FX losses booked in 2QFY25 and rise in transportation costs on higher shipping rates. QoQ, 3QFY25 revenue was lower marginally at MYR486m as the effective sales growth was masked by an unfavourable FX translation. Notwithstanding, 3QFY25 core earnings rebounded sharply from the low 2QFY25 base which was hit by chunky FX losses. In addition, shipping rates normalised from the peak in 2QFY25 and translated to a 23% fall in transportation costs.
• Outlook. We believe DXN's earnings growth will be supported by the relentless growth momentum in major markets. The core strategies to recruit new members and enhance the members' productivity will continue to revolve around member engagements, complemented by quality new product launches. Meanwhile, the recent capacity expansion should help to capture the rising demand and roll out new product categories to broaden the addressable markets. In addition, the consequent efficiency gain, together with annual price adjustments will sustain the high GPM of 80% notwithstanding the rising input and overhead costs. On top of that, we look forward to the result of the group's entry into Brazil, leveraging on its established existing network in the Latin American region. We expect significant earnings contribution from this venture in 3-4 years.
• Risks to our recommendation include major delays in expansion plans and unfavourable regulatory changes.
• ESG. Our DCF-based TP includes a 2% ESG discount.

Source: RHB Research - 28 Jan 2025