PublicInvest raises DKSH’s target price on better sales outlook, earnings growth

DKSH Holdings (M) Bhd, a market expansion services provider for companies who want to grow their business in Malaysia, made a strong revival yesterday (Sept 27) after having slumped to a four-week low of RM3.84 on Sept 21.

The counter surged 67 sen or 15.62% to RM4.96 with 2.09 million shares traded – a hefty volume for the usually quiet stock – to the cheer of investors who believe in the future growth prospects of the Swiss multinational company.

This, according to PublicInvest Research in its latest assessment of DKSH, is mainly underpinned by the expected recovery in consumer spending following the reopening of business activities in the economy.

Bullish about the company’s favourable product mix and better operational efficiencies which will continue to support its profit margins moving forward, the research house has retained its “outperform” call on DKSH with a higher target price of RM6 (previously RM5) based on an 11 times multiple to the company’s FY2022F earnings per share (EPS).

“We ascribe a slightly higher multiple to its five-year historical average of 10 times as we are anticipating better earnings growth on the back of higher net profit margins, mainly due to better operational efficiencies and the stronger profit contribution from its own brands,” justified analyst Wong Ling Ling in a company update after a recent meeting with DKSH.

“We are forecasting an average net profit margin of 1.2% for FY2021-2023F as compared to its five-year historical average of 0.8%.”

Anticipating stronger sales going forward, PublicInvest Research expects demand for DKSH’s marketing and distribution segment to improve in 2H FY2021 following a gradual re-opening of the economy as more than 80% of Malaysia’s adult population has been fully vaccinated.

“This should also bode well for the distribution channels for hotels, restaurants and cafes (HORECA) segment that was affected by the COVID-19 related movement restrictions,” projected the research house.

“While distribution for the healthcare products has been negatively affected by the lower footfall in hospitals, we think that patient volume will likely to pick up post re-opening.”

Outlook-wise, PublicInvest Research expects consumer demand to pick up in 4Q FY2021 amid festive spending although its 3Q FY2021 will likely be weaker quarter-on-quarter (qoq) due to seasonality.

“Meanwhile, we understand that the group is looking to take advantage of the lower interest rate environment by paring down some loans that it took to finance acquisition of the consumer goods distribution business of Auric Pacific (in March 2019). This should likely translate to lower finance cost moving forward.”

At the close of today’s mid-day trading, DKSH was up 3 sen or 0.6% to RM4.99 (after touching an intra-day high of RM5.34) with 1.56 million shares traded, thus valuing the company at RM787 mil. – Sept 28, 2021

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