A.A. Anthony Securities Sdn. Bhd.
(17812-U)
A Participation Organisation of Bursa Malaysia Securities Berhad
A.A. Anthony Securities Sdn. Bhd.
wee23 Website: [Link]
KDN PP 14119/03/2011 (029108) Recommendation
Company Update: 29 July 2010 TRADING BUY
DXN Holdings Berhad (5074) Current Price : RM 0.785
By Tan Chin Wooi ( cwtan@[Link] ) Target Price : RM 1.53
Investment Highlights
FYE 11 1st quarter EPS came in at 4.43 sen.
Early settlement of its CLO loan for RM35 mil and RM50 mil.
2.00 sen dividend has been proposed in the first quarter. We expect the management to maintain high dividend
payout going forward due to its improved cash position.
Management is committed to stay focus on its core business activities, focus on cost efficiency, profitability
enhancement and higher dividend distribution.
RM19mil of borrowings had been reduced in the previous quarter and further reduction in borrowings is likely,
thus reducing interest expense.
Distributable retained earnings stand at RM154 mil.
Cash and cash equivalents stand at RM43.5mil (equivalent to 18 sen per share).
DXN is relatively undervalued compared to its peers.
“One Dragon” company with own cultivation, own R&D, own manufacturing facility that produce and selling its
product under its own Brand “DXN”.
Aggressive and strong multi-level marketing agency force throughout world through its “One World One
Market” strategy.
Successful new market development in North America, Middle East, European, Mongolia and Africa are
expected to bring explosive growth in profit in near future.
Richmont Residence project, Penang – certificates of fitness (CF) has been obtained.
Stargate Project, Phase 1 – CF is expected to be completed by FYE’ 11 3rd quarter.
Company Background
Listing : Main Board Sector : Consumer Products
Par Value : RM 0.25 Listed Since : 30 September 2003
Share Issue : 240,764,000 Financial Year End : End February
Treasury Shares : 13,547,100 Market Capitalization : RM 188,999,740
Nature of Business
The Group's principal activities are manufacturing and selling health supplement and other products on a
multi-level marketing (MLM) basis. Its product lines include health food supplements, food and beverages,
personal care products, skin care, household products and water treatment system. Other activities include
property development and trading of timber concession right. Today, DXN is one of the world fastest growing
network marketing organisations with operation over 150 countries.
Substantial Shareholders as at 30 June 2010
Direct % In Direct %
DXN Group Sdn. Bhd. 45.94 -
Dato’ Dr. Lim Siow Jin - 46.84
Datin Leong Bee Ling - 45.94
Lim Boon Yee 19.22 0.90
Source: DXN’s Annual Report
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Share Price Performance
Share Price Performance
Price
0.75
0.7
0.65
0.6
0.55
0.5
Date
5/3/2010
5/10/2010
5/17/2010
5/24/2010
5/31/2010
6/7/2010
6/14/2010
6/21/2010
6/28/2010
7/5/2010
7/12/2010
7/19/2010
7/26/2010
High Low
Prices 1 Mth 0.800 (29-Jul-10) 0.560 (07-Jul-10)
Prices 3 Mth 0.800 (29-Jul-10) 0.530 (28-May-10)
Prices 12 Mths 0.800 (29-Jul-10) 0.380 (03-Aug-09)
Volume 12 Mths 9,639,900 (29-Jul-10) 10 (15-Dec-09)
Fundamental Review & Comparison
Financial Summary
Details (RM) 31 May 11 (1Q) 28 February 10 28 February 09
Turnover 67,800,000 259,917,403 276,730,028
Profit Before Taxation 12,523,000 36,999,629 27,218,069
Profit After Taxation 10,103,000 28,423,588 20,334,744
Reserves 141,006,000 135,995,246 117,299,287
Retained Profits 154,372,000 145,485,595 123,923,823
Shareholders Fund 205,715,000 196,186,246 177,490,287
Short-term Borrowings 54,254,000 68,526,228 11,455,778
Long-term Borrowings 6,627,000 11,338,330 92,168,193
Cash & Bank Balances 43,460,000 42,465,708 48,207,970
NTAB 0.79 0.76 0.74
EPS (Annualized) 17.72 12.38 8.74
PER 4.43x 6.34x 8.98x
DPS (sen) 2.00 3.50 1.25
Dividend Yield (%) 2.55% 4.46% 1.59%
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Ratio Analysis
Ratio 31 May 11 (1Q) 28 February 09 29 February 08
Profit Margin (Before Tax) 18.47 14.24 9.84
Return on Shareholders Equity - 14.49 11.46
Total Assets Turnover - 0.83 0.87
Current Ratio 1.98 1.84 4.15
Gearing Ratio 0.30 0.41 0.58
Debt Ratio 0.20 0.26 0.33
Total Debt To Equity Ratio 0.49 0.60 0.79
Source: DXN’s quarterly and annual reports
Corporate Developments
Operations Review
The Group recorded RM 67.8 million revenue for the current quarter and financial year-to date ended 31 May 2010,
representing an increase of 4.6% as compared to RM 64.8 million in the corresponding quarter ended 31 May 2009.
The increased was due to higher revenue contributed from multi-level marketing segment.
The Group recorded a higher profit before tax (“PBT”) of RM 12.5 million with PBT margin of 18.5% for the current
quarter and financial year-to date ended 31 May 2010 as compared to the corresponding quarter ended 31 May 2009
of RM 6.6 million with PBT margin of 10.1%. Multi-level marketing segment has contributed higher profit margin
due to cost efficiency.
The Group reported higher revenue of RM 67.8 million in the current quarter ended 31 May 2010 as compared to RM
60.1 million in the preceding quarter ended 28 February 2010. The increased was due to higher overseas sales
generated from multi-level marketing segment. The Group’s PBT for the current quarter was RM 12.5 million as
compared to RM 7.3 million in the preceding quarter. The increased in the PBT was mainly due to the provision of
RM5.65 million for diminution of investment in CLO subordinated bond in the preceding quarter.
Future Outlook
Global Expansion and Potential
The rapid global expansion of DXN in more than 150 countries for its global presence with its own brand name is
recognized internationally by its vast growth of members worldwide and its amplification of footprint in key strategic
locations. DXN is unique in the MLM industry that applies “One Dragon Concept” from R&D, cultivation,
manufacturing and marketing, and is fully integrated under its own brand name and apparently it has differential with
established strong global presence in a diversified overseas market, so called “One World One Market” Concept.
Product Development
The company has a strong base for its R&D activities in Mycological and Biotechnology that will lead the
exploitation of new products such as skin care and cosmetic products which was launched to the Malaysia Market but
yet to its overseas market. The pipeline product development of the vitamin series product is expected to launch by
3rd quarter, 2010. The company is also the 1st company in Malaysia to start cultivation for Spirulina and granted the
Pioneer Status for 10 years tax exemption from MAIDA, it is notice that the Spirulina sales has been picking up
steadily and the company is now under construction to build more Spirulina cultivation pound to expand its capacity.
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Product Quality
DXN Pharmaceutical Sdn. Bhd and DXN Industries (M) Sdn Bhd are an integrated factories that involved Lingzhi
and Spirulina Cultivation, Coffee factory, GMP factory for Health Food Supplement and beverage, juice, skin care,
household products and its R&D centre with approximately 25 hectres land located at Bukit Wang, Jitra, Kedah. The
company is certified by ISO14001, 9002, TGA from Australia, MS ISO/IEC 17025, GMP, Skim Organic Malaysia
and Halal.
Stargate Project
The Stargate Project is a township development project involving 300 acres of development land that comprises of
commercial building for shop office, private institutional, private hospital, hypermarket, petrol station and residential
project. The project is strategically located just an exit from Alor Setar South Toll of South-North Highway. The
company had signed a S&P to dispose a piece of land to Tesco Store for its hypermarket operation (expected to be
completed by 3rd quarter) and fully sold off all its freehold shop office building in Phase 1. The company is now
undergoing the land acquisition for its next phase of development and expected to launch 113 units of shop office
building on 1st quarter of 2010.
Its Richmont Residence project at Jelutong Penang is completed. 70 units out of 94 units are sold and there are still 24
units available but it is on hold by the company for higher sale price due to “Built & Sell” premium.
Valuation & Recommendation
Valuation
FYE 11 1st quarter EPS came in at 4.43 sen, which is 26% of our forecasted EPS of 17sen for FYE 11.
On a standalone valuation basis, we think it’s fair for a company which has a reasonably recognized brand and has
been growing at around 8% for the past 7 years to trade at a P/E multiple of 8x.
On a relative valuation basis, DXN should be valued at P/E multiple of 10x given most of its peers are trading around
that range.
To be conservative, we would value DXN based on the average of the two valuation methods (9x P/E multiple).
We have a Trading Buy call on DXN Holdings Berhad with a target price of RM1.53, which translates to a potential
upside of 95% from the current price of RM0.785.
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Rating Key
Trading Buy Potential upside expected to hit more than 30% over a 12 – month period
Buy Potential upside expected to range between 10% - 30% over a 12 – month period
Neutral Potential expected to stay between 10% and -10% over a 12 – month period
Sell Potential downside expected to range between 10% - 30% over a 12 – month period
Trading Sell Potential downside expected to dip more than 30% over a 12 – month period
* The target prices of shares mentioned in the accompanying text are based on the assumed investment horizon of 12-months. If company
notes are published on these shares in the future, the target prices mentioned in the new notes will have priority.
The information in this report has been obtained from sources believed by A.A. Anthony Securities Sdn Bhd (AAA) to be reliable but its
accuracy or completeness is not guaranteed. Opinions contained herein are subject to change without notice. This report is for
informational purposes only and is not to be construed as an offer or solicitation for the purchase or sale of any financial instrument. This
report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who
may receive this report and is not a substitute for the exercise of independent judgement. We accept no liability for any direct or indirect
loss arising from the use of this report. Copyright and database rights protection exists in this report and it may not be reproduced,
distributed or published by any person for any purpose without the prior express consent of AAA. All rights are reserved.
Principal Office - Penang Johor Bahru Branch
1st Floor, Bangunan Heng Guan, Levels 6, 7, & 8, Menara Sarawak Enterprise,
171, Jalan Burmah,10050 Pulau Pinang. 5, Jln Bukit Meldrum, 80300 Johor Bahru, Johor Darul Takzim, Malaysia.
Tel: 604-229 9318 Fax: 604-226 8788 Tel: 604-229 9318 Fax: 604-226 8788
Sri Hartamas Branch Bukit Mertajam Branch
N-1-3 Plaza Damas, 60 Jalan Sri Hartamas 1, 2 Jalan Perniagaan 2, Pusat Perniagaan Alma,
50480 Sri Hartamas. 14000 Bukit Mertajam.
Tel: 603-6201 1155 Fax: 603-6201 1001 Tel: 604-554 1388 Fax: 604-5541 1389
Johor Jaya Branch Kulai Branch
70 Jalan Rosmerah 2/17, Taman Johor Jaya, 42-8 Main Road, Kulai Besar,
81100 Johor Baru. 81000 Kulai.
Tel: 607-351 3218 Fax: 607-351 3843 Tel: 607-663 6658 Fax: 607 663 6653
Alor Setar Branch Nusa Bestari Branch
Lots 4, 5 & 5A, 1st Floor, EMUM 55, No. 55, Jalan Gangsa, 171, Ground Floor, Jalan Bestari 1/5,
Kawasan Perusahaan Mergong 2,Seberang Jalan Putra, Taman NUsa Bestari, 81300 Skudai,
05150 Alor Setar, Kedah. Johor.
Tel: 604-732 2111 Fax: 604-732 2777 Tel: 607-512 1633 Fax: 607-512 1933
Teluk Intan Branch
29G, Jalan Intan 2, Bandar Baru,
36000 Teluk Intan,
Perak Darul Ridzuan.
Tel: 605621 6010 Fax: 605-621 6011
For Internal Circulation Only
