DKSH’s 3QFY23 net profit was down 1.7% YoY to RM17.4m, dragged by the weaker performance from the Consumer Goods segment and higher operating expense. Cumulative 9MFY23 net profit of RM78.2m was in-line with our and consensus estimates, accounting for 76% and 70% of our full-year forecast respectively. For the coming quarter, we expect a seasonal uptick in sales, driven by festive year-end spending. However, we believe the overall consumer spending to remain weak due to inflationary pressure. As such, we maintain our Neutral call on DKSH, with a lower TP of RM4.78, based on a lower PE multiple of 7x FY24F EPS, in-line with its average 5-year forward PE (see figure 1).

• 3QFY23 revenue fell by 1.1% YoY to RM1.8bn, primarily due to nonrecurring hospital tender recognised in 3QFY22. This was partially mitigated by higher sales generated from new clients and robust growth from existing clients in the Healthcare segment. Revenue from the Consumer Goods segment rose slightly by 0.4% due to stable sales. On a QoQ basis, revenue was marginally lower as second quarter is typically one of the strongest quarters due to seasonal festivities.

• 3QFY23 net profit reduced marginally by 1.7% YoY to RM17.4m, dragged by increased logistics cost base and higher selling expense within the Consumer Goods segment. On the other hand, operating profit in the Healthcare segment was 16.7% higher (3QFY22: RM15.0m), attributed to improved margin mix. This has resulted in an improved EBIT margin of 2.1% in the Healthcare segment (3QFY22: 1.8%).

• Outlook. We expect DKSH to report better performance in 4QFY23, as we are anticipating a rebound in consumer spending due to year-end festive spending. Going forward, we remain cautious over DKSH’s future outlook as we believe that consumer sentiment will continue to remain soft, amid ongoing rising cost of living. Nevertheless, should consumers down-trade due to weaker spending power, we think that the group should be able to partially mitigate the impact given DKSH’s wide array of international and local clientele. In the long run, we believe that DKSH will continue to benefit from the growing Malaysian middle class as well as the growing outsourcing trend.

Source: PublicInvest Research - 22 Nov 2023