This text first appeared in The Edge Malaysia Weekly on April 1, 2024 – April 7, 2024
DXN Holdings Bhd’s share value is down 10.7% since relisting final 12 months at an IPO value of 70 sen — an underperformance that the group attributes to traders’ inadequate information of its enterprise operations.
Certainly, founder and non-independent govt chairman Datuk Lim Siow Jin acknowledges there was scepticism over DXN’s gross sales efficiency in abroad markets akin to Latin America.
Regardless of these challenges, the well being and wellness-oriented direct promoting agency is seeking to show its energy by charting annual gross sales progress of at the least 15% to twenty%. DXN is assured that the goal will be simply surpassed by enlargement into new markets, beginning this 12 months with Brazil and Egypt.
Latin America is the group’s key market, contributing greater than half of group income, whereas about 14% comes from the Center East and North Africa.
“Now we have excessive hopes for Brazil, which is similar to Peru and Bolivia. The per capita gross sales in Peru and Bolivia are very encouraging. In Latin America, we don’t have a presence in lots of nations, akin to Chile and Uruguay. So, we nonetheless have enlargement outlook there,” Lim tells The Edge on the group’s new advertising and marketing headquarters in Cyberjaya, Selangor.
Having stated that, he notes {that a} new market usually takes two to 3 years to mature.
DXN additionally plans to construct new factories in Morocco and Peru this 12 months at a complete land price of RM49 million. The set-up price, which has but to be finalised, is often greater than RM100 million for a plant, based mostly on the corporate’s observe report.
Lim believes DXN has a singular proposition within the multi-level advertising and marketing (MLM) market, regardless of going through rising prices from logistics and inflationary pressures previously two years. “We aren’t a pure MLM firm, we’re a producer. Greater than 90% of DXN merchandise are manufactured in-house. Due to this, we’re capable of get a web revenue margin of 15% to twenty% in contrast with our friends’ 5% to 10%.”
As well as, he says the corporate is concentrated on the net idea, working a smaller variety of branches or rising by natural enlargement — by means of individuals and never branches. One other energy is that DXN has a buffer inventory of 5 to 6 months to deal with provide disruptions, he provides.
Through the pandemic, extra individuals have been prepared to take part in MLM to extend their earnings base, Lim observes. “We did properly through the [Movement Control Order] interval, with about 20% progress.”
DXN’s product choices embody well being and dietary dietary supplements, meals and drinks, and private care and cosmetics. The uncooked supplies for its merchandise embody ganoderma, spirulina, cordyceps and tiger milk mushroom.
Of its 17 million members worldwide, 5.2 million are lively ones — outlined as those that have purchased merchandise within the final two years.
Based in 1993 by Lim, DXN was first listed on the native bourse in September 2003 however taken non-public in December 2011 to streamline the company administration.
On the time, traders have been confused about DXN’s many non-core companies, akin to property improvement and plantations, which led to the delisting of the group, says Lim.
After greater than a decade, the corporate made a comeback on Bursa Malaysia in Could 2023, elevating greater than RM120 million from its IPO. This time round, DXN put up solely its well being and wellness enterprise — a technique that Lim says will proceed because the group believes in being asset-light and having sufficient money to handle any shocks. That explains its web money place through the years.
“Each firm ought to have some type of contingency funding. Together with the inventory buffer, now we have greater than RM1.2 billion in hand,” he provides. At end-November 2023, it had RM228.3 million in web money movement and whole borrowings of RM183.3 million.
DXN has a dividend coverage of distributing at the least 55% of its web revenue to its shareholders. It paid a dividend of two.6 sen per share for the primary 9 months of the monetary 12 months ended Feb 29, 2024 (9MFY2024), representing a dividend yield of 4%.
Buying and selling at a 12-month ahead price-earnings ratio (PER) of 9 instances, DXN’s share value had slipped 2.3% 12 months to this point to shut at 62.5 sen final Wednesday, for a market capitalisation of RM3.1 billion.
Its friends Amway Malaysia Holdings Bhd and Beshom Holdings Bhd are buying and selling at 12-month ahead PERs of 10.9 instances and 22 instances respectively.
Whereas the share value motion has not been encouraging, Lim, who holds a 68.27% stake in DXN by means of LSJ International Sdn Bhd, says the group will not be eager on aggressive share buybacks.
“My shareholding may be very excessive, already near 70%, and it might set off a GO [general offer]. The share value is about market sentiment, and it additionally means that the market doesn’t perceive us and our potential,” he observes, seemingly unfazed.
Between Feb 22 and 28 this 12 months, DXN purchased again 10.78 million shares for RM6.83 million. The shares have been transacted at 63 to 64 sen apiece. Gano International Dietary supplements Pte Ltd is the second-largest shareholder of DXN, with 13.31% fairness curiosity.
Bloomberg information reveals that each one 4 analysts protecting DXN have “purchase” calls, with a consensus goal value of 91 sen, suggesting an upside potential of 45.6%.
For 9MFY2024, DXN’s web revenue expanded 5.3% 12 months on 12 months to RM231.98 million from RM220.23 million, underpinned by gross sales progress in Latin America and India. Income for the interval in evaluate was up 11.4% y-o-y to RM1.33 billion from RM1.2 billion.
In FY2023, its web earnings grew 13.4% y-o-y to RM275.4 million, from RM242.92 million, on the again of a 28.8% rise in income to RM1.6 billion, from RM1.24 billion.
DXN ventured into Latin America in 2005 when it unfold its wings to Mexico. This was adopted by its enlargement into Peru and Bolivia in 2010 and 2012 respectively.
“You shouldn’t have some type of pre-judgement of a sure market. No person imagined Morocco would turn out to be a serious market. So hopefully, North Africa will comply with go well with,” says Lim.
DXN has 13 manufacturing services throughout Malaysia, India, China, Mexico, Indonesia and the United Arab Emirates (UAE), with a complete built-up space of 477,300 sq m.
Over the previous three years, the group has spent greater than RM400 million to fund its enlargement, which incorporates the development of producing services in India and China and the acquisition of vegetation and equipment in Malaysia, the UAE, India and China, amongst others. The group is now growing its ready-to-eat and ready-to-drink segments.
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