DKSH posted a marginally stronger quarter with a 3QFY24 net profit of RM17.5m (+0.6% YoY), attributed to improved contributions from all 3 operating segments. While DKSH's cumulative 9MFY24 net profit of RM84.6m accounts for 69% and 63% of our and consensus estimates respectively, we deem this performance to be in line with our estimates, as we expect DKSH to chalk stronger earnings in 4QFY24 due to seasonality factors. We believe the upcoming salary adjustments for civil servants and higher minimum wage will boost consumer spending, thereby benefitting DKSH. We reiterate our Outperform call and maintain our TP of RM5.85, based on 7x FY25F EPS.

• 3QFY24 revenue grew by 8.7% YoY to RM2.0bn, primarily due to growth in both the Consumer Goods (+9.3% YoY) and Healthcare (+7.6% YoY) segments. The stronger performance was likely due to newly secured clients, alongside growth from existing clients. Meanwhile, for Others segment, revenue jumped by 21.9% YoY, driven by higher sales and outlet expansion.
• 3QFY24 core net profit rose marginally by 0.6% YoY to RM17.5m, supported by stronger sales from the Healthcare segment, which resulted in an operating profit improvement of 6.9% YoY. However, the Consumer Goods segment saw a 5.0% YoY decline in operating profit, which was dragged down by change in client mix and unrealised foreign exchange losses, despite recording sales growth.
• Outlook. We expect DKSH to continue to deliver stronger earnings in 4QFY24, driven by festive spending. Furthermore, salary hikes for civil servants and the higher minimum wage are likely to spur consumer consumption, which could benefit the group. While the elevated cost of living might weaken demand for consumer discretionary products and downtrading activities, we believe that DKSH's diverse portfolio of premium and affordable options will help cushion the negative impact.

Source: PublicInvest Research - 22 Nov 2024