Posted by Henry HO > 2016-12-02 10:36 | Report Abuse

Thank you Felicity for this write-up on DKSH...
For the 3Q2016 Results...
DKSH Revenue is RM 1,256,938,000.
Profit is RM 5,414,000 only.Gross profit margin at 0.4%!!!!!!Really paper thin profit margin...If revenue goes down to RM1bil...DKSH could be at a loss...

Posted by cjcj > 2016-12-02 11:40 | Report Abuse

Henry, this is mainly a one-off doubtful debt provision for one customer (9.72m) which drag down the profit. Please study and fully understand before comment. Thank you.

Posted by sumato88 > 2016-12-02 11:44 | Report Abuse

This is a misunderstanding, the co always mark up a margin for a product that they distribute, typically gross profit margin is about 8-9% and I think 9M16 gross profit margin is closer to 9-10% after the change of telco clients. So for rm5.5bn revenue, gross profit should be about rm495-550m. This profit is very certain. The co core operating cost was about rm400m in fy15, which management mentioned there were some startup cost for moving office and distribution centers. So the actual operating cost should be lower and the key is how do they manage the operating cost going fwd when revenue do not grow. If revenue continue to grow 5-7% p.a. (This is the 10 yr historical growth rate), the co will make additional rm21m-27m gross profit. If the co manage to control its operating cost which it seems to be stable, according to the recent quarter results, the incremental gross profit will flow to the bottomline. Well, some may ponder why the operating cost will not grow more than revenue. The logic is simple, you have a truck deliver 10 products to AEON JUSCO, next mth u secure new client or new product to distribute to the same channel. So do u think the cost will increase like the volume increase? The answer is no, u probably will only incur additional 60% cost for a dollar additional gross profit. That's the beauty of a distribution biz, the operating leverage is very good, as long as u can manage the operating cost which DKSH seems to be able to. Exceptional provision for doubtful debt is indeed bad to the p&l giving its thin net margin. But historical trend proved that the receivable risk is low, as I mentioned earlier, the avg provision for doubtful debt over the past 5 years was only rm0.2m per annum. So how can we call the biz model risky when it's revenue is in the billions.