DKSH to see stronger sales as consumer sentiment improves


DKSH Holdings Bhd is expected to record stronger sales in the future in tandem with a recovery in consumer spending following the reopening of business activities.

PublicInvest Research analyst Wong Ling Ling stated that the demand for DKSH’s marketing and distribution (M&D) segment will likely improve in the second half of 2021 (2H21).

“This should also bode well for the distribution channels for the hotels, restaurants and cafes segment that was affected by the Covid-19 related movement restrictions.

“While the distribution for the healthcare products has been negatively affected by the lower footfall in hospitals, we think that patient volume will likely pick up post reopening,” Wong wrote in a report on DKSH yesterday.

The analysts noted that DKSH’s favourable product mix and improved operational efficiencies will continue to support its profit margins.

“DKSH is slowly reaping the benefits from its internal efficiency project, which saw its 1H21 earnings before interest and tax margin improve to 2.3%, from 1.6% in 1H20 given the better operational efficiencies. The better margin mix given the higher contribution from its in-house brands should continue to support its M&D segment margins,” stated Wong.

DKSH remains committed to further improvements on its operational efficiencies and working capital management moving forward.

The analyst warned DKSH’s third quarter of 2021 (3Q21) will likely be weaker due to seasonality but pick up in 4Q.

“We are expecting consumer demand to pick up in 4Q21 amid festive spending. We understand the group is looking to take advantage of the lower interest rate environment by paring down some loans it took to finance for Auric Pacific in Singapore and Malaysia’s acquisition previously. As such, it should likely translate to lower finance cost moving forward,” added Wong.

PublicInvest maintains its ‘Outperform’ call on DKSH with a higher target price of RM6 (previously RM5) based on 11 times multiple to the financial year of 2022 (FY22F) earnings per share.

“We ascribe a slightly higher multiple to its five-year historical average of ten 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,” Wong added.

She also forecast that DKSH to enjoy an average net profit margin of 1.2% for FY21-FY23F compared to its five-year historical average of 0.8%.