Posted by halia > 2016-11-29 09:42 | Report Abuse

sell all.....no more keeping

Posted by IamGoogle > 2016-11-29 16:51 | Report Abuse

PE 15 times for such business with less than 1% net profit margin, what a mad

Posted by IamGoogle > 2016-11-29 16:52 | Report Abuse

Transport charges increased 5% then will have no more profit ?

Posted by IamGoogle > 2016-11-29 16:54 | Report Abuse

So, the price goes back where it was, that's before Icon8888 trumpeting LOUD LOUD, RM4.50

Posted by IamGoogle > 2016-11-29 16:54 | Report Abuse

Welcome back, price.

Posted by michaelwong > 2016-11-29 18:05 | Report Abuse

All badly hunt down with bruises . ......mampus . ...mampus !!!

Posted by Tai KT > 2016-11-29 22:01 | Report Abuse

If you want to chase high, always set you cut loss point count from the new high point. 10,15 or 20 % off from new high 6.4. You may prepare to loss instead of trap to be deep.

Posted by paoblocrk > 2016-11-29 22:59 | Report Abuse

I believe in DKSH..... sumatoo88, I have the same view with you, it is over-reaction, at this price I think I will also buy a few to keep.

Posted by Mat Cendana > 2016-11-29 23:22 | Report Abuse

Good analysis by @sumato88. I don't have any shares in DKSH but I'm looking to come in. The problem right now is the trend. Exacerbated by weak holders panicking. Must wait for the counter to find equilibrium first. I believe it will be sooner rather than later. After the weak holders have left.

Posted by ABCDEFGHIJKLMN > 2016-11-29 23:26 | Report Abuse

Don't simply said those sellers are weak holders, you don't know anything but simply assuming these are weak holders, it is biased judgement.

Posted by ABCDEFGHIJKLMN > 2016-11-29 23:27 | Report Abuse

You are also assuming those buyers are smart holders, then who you are? Smart holders or Weak holders? Or you are not both? You are just ordinary holder?

Posted by solomin > 2016-11-29 23:51 | Report Abuse

sumato88 Reported pat + impairment net of tax = 5.4 + (9.7 x 70%) = 12. The tax rate is about 30% (2.3/7.7) in this quarter
29/11/2016 09:02

Thanks for the explaination!

Posted by solomin > 2016-11-29 23:51 | Report Abuse

Will continue to hold it and accumulate slowly :)

Posted by cjcj > 2016-11-30 09:44 | Report Abuse

buy when people fear, sell when people greed

Posted by sumato88 > 2016-12-01 09:38 | Report Abuse

DKSH's market cap is about rm748m now. For a distributor, net working capital is always the major capital and also as liquid as cash. Anyone who wants to buy out the company has to take that into consideration. So if you minus the net working capital of rm489m (net of debt), the biz model valuation is only 4.3x Pe (rm748m - Rm489m)/ rm60m). So is that cheap enough for u? That is the basis of Distributors' valuation which has always been valued btw high teens and 20ish PE multiple. Remember, once a distributors is entrenched, it is very difficult for the new entrant to come in.

Posted by Mat Cendana > 2016-12-01 13:33 | Report Abuse

That part is very true. The abbreviation might obscure the name for some people. Diethelm especially. It's not like anyone can easily come in to challenge. Well, they can. But unseating an entrenched incumbent will always be tough.

The price looks to have stabilised. The weak holders appear to have left.

Posted by solomin > 2016-12-02 00:01 | Report Abuse

http://www.intellecpoint.com/2016/12/dksh-should-still-be-strong-company.html

Posted by solomin > 2016-12-02 00:01 | Report Abuse

Good article by Felicity.

Posted by ABCDEFGHIJKLMN > 2016-12-02 00:16 | Report Abuse

Profit margin too low, anything happen like few millions provision for doubt debts can kill off the bottom line, risky business.

Posted by sumato88 > 2016-12-02 11:43 | 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.

Posted by cjcj > 2016-12-02 12:15 | Report Abuse

Agreed with sumato.

Posted by paoblocrk > 2016-12-02 14:53 | Report Abuse

wow.. Sumato88 what you have said just make sense to me.... are you an accountant in nature? or if your job nature in this kind of distribution industry (i.e B2C )? To defend DKSH for so many valid points really make one think u are a strong believer in this DKSH business, and for that, I will try to buy few lots for investment. lolx

I am no expert in DKSH business but so far I saw the vaccine/medicine deliver to hospital are professionally packed and hospital love to buy their products compared to pharmaniaga or GSK.

Posted by stockmanmy > 2016-12-02 14:56 | Report Abuse

DKS is a solid solid company operating in a tough environment.

Posted by sumato88 > 2016-12-03 12:58 | Report Abuse

Hi, Paoblocrk. I am an accountant...

Posted by paoblocrk > 2016-12-03 23:03 | Report Abuse

Kudos to you... wow you are really a competent accountant which can really articulate and use your professional knowledge in the analysis in DKSH...May I ask what industry do your practice your professional service? I think the group chat will somehow benefit from you analysis at least for me..... keep it up! I try to contribute if I can but I think I am not at your level yet. Haha

Posted by sumato88 > 2016-12-04 20:42 | Report Abuse

Thanks Paoblocrk. I am in the FMCG industry. Just sharing what I know and believe.

Posted by greatful > 2016-12-06 19:13 | Report Abuse

roller coaster counter

Posted by ABCDEFGHIJKLMN > 2016-12-06 23:02 | Report Abuse

Thank you for taking your time to explain, truly appreciate that, sumato88. However, historically, the business model of the company has generated only about 1%-2% net profit margin for the past 10 years, that won't change over night.

To be frank, this is not my cup of tea but I like the discussions over this forum. Keep it up, guys!


sumato88 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 ...........................................
................................................ So how can we call the biz model risky when it's revenue is in the billions.
02/12/2016 11:43

Posted by IamGoogle > 2016-12-13 13:42 | Report Abuse

Mr Market realised the true stock value via the movement of share price, previous up was overcooked as the meat was too thin to be shared among.

Posted by IamGoogle > 2016-12-13 13:46 | Report Abuse

Only those businesses with good & healthy profit margin can get through the storm, those command little 1 or 2 percents only will be badly hit.

Don't bother to look at those less than 1% like BINA PURI which has been highly recommended & promoted by the famous Calvin Tan

Posted by PlsGiveBonus > 2016-12-13 14:45 | Report Abuse

falling knife

Posted by TabulaRasa > 2016-12-13 14:46 | Report Abuse

sumato88,

Thank you for your clear & insightful analysis of DKSH.

Just to clarify your statement that DKSH's net working capital is a good and liquid as cash, are you saying this on the basis that DKSH's contracts with its suppliers allow it to 'resell' its inventories back to them if unsold after a certain period and they don't take inventory risk?

I am not sure if this is the case.

Furthermore, the recent impairment of receivables also highlights the risk of non-collection, despite the strong credit controls of DKSH.

When you mentioned that the PE of other Distributers are between teens to 20s, presumably you have not made similar adjustments to the net working capital, right? If we were to compare like-for-like, DKSH's current PE of 15 is within the range you quoted.

Posted by sumato88 > 2016-12-13 16:26 | Report Abuse

Tabula,

my belief of net working capital is as good as liquid as cash is based on
1) majority of the receivables should be due by modern on trade retailers such as Aeon/Tesco etc with the smaller exposure to mom&pop shops, which is the general retail market share between modern and traditional trade channel. So I think the big modern on trade retailers have very small risk to default. As I mentioned, past 5 yrs avg impairment per year is rm0.2m, this should be the basis to assume receivable risk instead of annualizing impairment in 9m16

2) inventory should be at their risk but unlike steel or commodity inventory which has volatile pricing, DKSH's inventory is mainly FMCG, healthcare products & telco prepaid cards. The only risk is shelf life risk (no shelf life for prepaid card so this segment got no risk). Past 5 yrs of avg inventory write off is only about 1.8% of its inventory value. So I think the inventory value can be easily realized over a month (typical inventory turnover cycle) with less than 2% discount, if historical trend is a guide.

For PE multiples, you are right as the high teens to 20x pe multiples include the net working capital. So if you want to compare like to like btw distributors, u should net of the working capital and net debt, to see the intrinsic value for its distribution network. And I forecast rm60m core profit for 2016 (9m16 done rm47m).

I tried to compare DKSH biz to its retail customers such as AEON, Caring etc to see what's the valuation difference after net of working capital. The answer is quite straightforward, the retailers are trading at more than 20x PE with low single digit margin (3-6%) as compared to less than 5x PE for DKSH (1-2% net margin) Well, many investors are annoyed by its 1% net margin, but I see it as an opportunity for operating leverage (obviously 3q16 was operating deleverage as compared to 2q16) as I believe fundamentally, competition among distributors is less severe than retailers.

Hence, I believe profit growth will resume once consumer sentiment recover. After all, the exposure for DKSH is similar to Aeon/caring and other retailers, i.e. Consumer spending. But the operating leverage is steeper for DKSH and valuation is a lot cheaper as compared to other retailers. Of cos you can also argue the retailers have properties hence deserve a higher valuation. But I would prefer asset light investment for smilar market exposure and growth.

Another thing to share here, I realized DKSH Swiss is a net cash co with about RM1.5bn as at Jun16. I wonder if they will take DKSH Malaysia private giving such cheap valuation (<5x PE ex net working capital ex net debt) and cheap ringgit. Not meant to speculate but I do see value proposition for the holding company who owns 74%. Assume to offer rm7.00 per share, it only requires less than rm300m.

Price still dropping on small volume, I was shocked initially when price plunged from 6.15 to 4.80 within 2-3 weeks. But frankly, I feel happy now as the current price offers me to buy a quality co at distress valuation. Been review my investment thesis after seeing price weakness continue, but the more I study, the more comfortable I am.

Posted by sumato88 > 2016-12-13 16:31 | Report Abuse

Risk rider

You are right as the 1-2% net margin wouldn't change overnight and I don't expect it too. But I do expect 20 basis points margin improvement per yr based on my calculations, assuming 5-6% revenue growth. So 20 basis points to 1.00% net margin equals to 20% growth.

DKSH has net debt of rm345m 10 yrs ago vs rm19m net cash in 2015. So from now onwards, I would expect the co to pay more dividends. 9m16 was net debt of rm76m but I think this is atiming issue. Let's see 4q16, I would expect the cash return.

Posted by cjcj > 2016-12-13 16:56 | Report Abuse

sumato, your statements are so impressive! Bravo!

Posted by Siew Jian Bin > 2016-12-17 14:59 | Report Abuse

I just bought this share, but feel that bought in too early. :-)

Posted by paoblocrk > 2017-01-24 11:15 | Report Abuse

Dear Sumato88, stay firm with your belief, if the coming DKSH results is consistent with your belief, then you should continue to buy more or stay on track with it. Otherwise, if it is not consistent, then you may have to do some adjustment. One piece of advice, inexperience investor will nomrally only loose money because they sway away from their own belief, there... the transaction cost kicks in to eat up all their returns/margins. Time will tell if it is really a great stock

Posted by sumato88 > 2017-02-07 12:36 | Report Abuse

DKSH Swiss reported good results yesterday and share price shot up 8%. A prelude to good 4Q16 results for DKSH Malaysia? http://www.dksh.com/global-en/home/investors/financial-results-and-presentations

Posted by cjcj > 2017-02-07 12:57 | Report Abuse

sumato, mind to elaborate more on your finding from this annual report? Would like to listen your opinion. Thanks!

Posted by cjcj > 2017-02-07 13:50 | Report Abuse

http://78449.choruscall.com/dataconf/productusers/dksh/mediaframe/17964/indexr.html

Fill in the info and listen the webcast for the analysts.

As mentioned very strong Year in Malaysia!

Posted by sumato88 > 2017-02-07 14:33 | Report Abuse

I think numbers should be good for DKSH Malaysia. But scanty disclosure make it hard to know the numbers for sure. We can take a cue from its attribution to non-controlling interest which implies stronger 2H16 (1H16: CHF2.0m vs FY16: CHF4.4m). But bear in mind there are other subsi which DKSH Swiss not owning 100%, although Malaysia Minority Interest should share the most, based on the historical trend.

Posted by cjcj > 2017-02-07 15:10 | Report Abuse

Means Q4 2016 is better than Q3 2016 because Q3 has the weakest quarterly result in 2016 right?

Posted by yangstockwatch > 2017-02-07 15:46 | Report Abuse

DKSH has been sideway since fall from RM6...
After reading the latest news letter from the CEO,
"Compared to last year, net sales increased by 4.5%, operating profit (EBIT) by 8.4% and profit after tax by 6.7%. The number of specialists reached more than 30,000 for the first time."

or the similar link:
https://klse.i3investor.com/blogs/sumato88/115360.jsp
by Sumato88

Im expecting this counter will goes back to RM5 first shortly, then RM6 after QR released.

My average buying RM4.55..
Lets ride with me....

Posted by paoblocrk > 2017-02-09 10:55 | Report Abuse

at the Annual report of DKSH, it is noted that
" In November, DKSH sold BiO-LiFE, a company that develops and markets health products and nutritional supplements under its own brand in Malaysia."

Net sales in CHF for malaysia has reduced from 1,391.9m to 1,267.0m mainly due to the termination of 2 main contract

But the EBITDA on consumer goods ( which primary is Malaysia and Singaporeand HK) increased from 29.7mil to 105.8mil.

Somemore it is best result in company history.

Sounds positive but I hope they manage to collect back that bad debt wei......... then can further improve the profitability.

Higher dividend somemore, DKSH malaysia follow suit?

What do u think Sumato88?

Posted by paoblocrk > 2017-02-09 10:58 | Report Abuse

opps we have to take out gain on disposal of shareholding of CHF9.6m from the result... my bad, but EBIT still great.

Posted by dudu > 2017-02-17 11:58 | Report Abuse

Nobody buy this share?
Nobody...nobody but you !
Nobody...nobody but you !

Posted by gnail > 2017-02-18 10:29 | Report Abuse

go to rm 6 please

Posted by Flintstones > 2017-02-21 17:48 | Report Abuse

Results was good but not very good. Thanks for the sweet ride, I am selling at tomorrow's open.

Posted by Bigbull99 > 2017-02-21 18:22 | Report Abuse

http://www.malaysiastock.biz/Corporate-Infomation.aspx?securityCode=5908 if this is not very good I don't know what is. 33% Y-O-Y and massive increase Q-O-Q.

Posted by Starleague > 2017-02-21 22:19 | Report Abuse

Hi all,

Thought the 4Q16 result was quite commendable actually. Few thoughts from myself:-

1. 4Q16 reported net profits of RM13.4m grew by +32% year-on-year whilst FY2016 reported net profit of RM50.5m was also up 37%. How many companies in Malaysia can grow net profits by >20%. Recall that they got hit by RM15m worth of inventory impairments this year which was one-off in nature and should not recur next year again. Excluding this amount, profits would have been up 70% yoy.

2. Total cash balance of RM125m improved by +17% yoy (recall cash went to near-zero in 3Q16). In fact they had some surplus cash and actually repaid back some borrowings (RM6m). Net cash is 5% of total market capitalization now. Remember this is a distribution business model and quarterly cash balances will fluctuate given the working capital requirements however they closed their balance sheet on a clean slate.

3. Not only did they close their balance sheet on a clean slate, read their cash flow statement and consider the immense cash-generation potential of their business. FY2016A free cash flow (operating cash flow less investing cash flow) totaled RM39.2m. This is equivalent to a free cash yield of approx. 5%.

Organic growth excluding the telecommunications client for their logistics segment grew by "strong double digits" whilst marketing and distribution grew by 5.3%.

Free cash flow generation even more this year as the business grows organically (high single digits) whilst they have finished their large capital expenditure projects (shifting HQ in Petaling Jaya and East Malaysian warehouse expansion). Hence, FCF yield should be closer to 5.5-6.0% this year.

4. Those closely following the stock would tell you that several large expense and one-off items will (or should not) not recur into FY2017.

(a) One-off provisions for impairment of trade receivables of RM15m (note that you can provide for but also collect back, if you are successful).

(b) One-off office relocation costs and warehouse capex growth in East Malaysia

(c) Change in telecommunications clients would dragged down revenue and profitability.

This means that FY2016 provides a base year for an even stronger FY2017.

5. Their outlook statement also reads positively on its own and compared against FY2016:-

4Q16 outlook statement:
The Group takes a positive outlook on 2017. Market conditions remain variable but are expected
to be largely similar to 2016. Costs remain stable and no major expenses or infrastructure
upgrades are planned in 2017 as the recently improved infrastructure remains able to support
the growth currently being experienced. Revenues are expected to resume growth in 2017 as
there will no longer be an effect of the change in telecommunications client.

4Q15 outlook statement:
The Group takes a cautiously optimistic outlook on 2016. Market conditions remain challenging, particularly following the implementation of GST, which continues to effect consumer demand to a certain extent.

6. They have hired Stephen Ferraby as a Non-Executive Director. Importantly, he is part of DKSH Switzerland (parent company) management committee which tells you the Malaysian business has grown to be of significance and they will be placing a greater emphasis on the Malaysian business (i.e. not just a small tiny subsidiary). This is a net small positive.

Of greater importance, is that the parent company will have a new CEO, Stefan Butz (48 years old) whom will replace the old guard (Dr. Joerge Woller) and run the business with greater energy.

All-in-all, barring liquidity, this is arguably one of the better managed companies left in Bursa Malaysia with extremely high barriers to entry and low capital intensity with reasonable valuations. The parent company trades at 24x 2017 PER whilst the Malaysian business trades at 16.5x trailing FY2016 PER or 13-14x 2017 PER, on my estimates. Good luck to all.