DKSH’s 1QFY24 net profit increased by 9.2% YoY to RM40.4m, primarily owing to better contributions from the Healthcare segment, on strong growth from existing and new clients. Results were above our and consensus estimates, accounting for 35% and 32% respectively. The discrepancy in our forecast was mainly due to lower-than-expected logistic costs. We raise our forecast for FY24-26F by an average of 7%, as we raise our profit margin assumptions on lower operating cost from the consumer goods segment. We foresee DKSH to post a 10.6% earnings growth in FY24F, underpinned by its well-diversified portfolio that could cushion earnings from down trading activities. Moreover, we expect a potential boost in consumer spending thanks to the introduction of EPF Account 3. We upgrade our call on DKSH from Neutral to Outperform, with a higher TP of RM5.85, based on 7x FY25F EPS.

• 1QFY24 revenue grew by 5.3% YoY to RM2.07bn, mainly attributable to stronger performances from its Healthcare and Others segments. The Healthcare segment saw its revenue increase by 13.6% YoY, driven by strong growth from existing and newly secured clients. As for its Others segment, revenue jumped by 20.7% YoY, reflecting stronger festive sales and price adjustments. However, this strong growth in revenue was partly offset by weaker demands from the Consumer Goods segment (-0.8% YoY) due to soft consumer demand.

• 1QFY24 core net profit grew by 9.2% YoY to RM40.4m. Despite recording a decline in sales, DKSH saw its Consumer Goods segment operating profit grew by 2.7% YoY, thanks to an improvement in personnel costs. Meanwhile, the Healthcare segment’s operating profit rose by 14.2% YoY, likely due to the better operational efficiency. As a result, DKSH’s EBIT margin grew by 0.1ppt to 2.9% (1QFY23: 2.8%).

• Outlook. We believe that the introduction of EPF Account 3 will help to boost consumer consumption which will likely offset the impact from higher cost of living. This should augur well for DKSH, given its diverse portfolio of premium and affordable options. Therefore, we think that should there be down-trading among consumers, DKSH would still be able to mitigate the negative impact. All told, we expect DKSH to post a net profit growth of 10.6% YoY.

Source: PublicInvest Research - 17 May 2024