DKSH Holdings (Malaysia) Bhd
(Aug 9, RM3.82)
Maintain outperform with an unchanged target price of RM5: Revenue in the second quarter ended June 30, 2018 (2QFY18) grew 3.5% year-on-year (y-o-y) to RM1.44 billion. The growth in revenue was largely due to organic growth in DKSH Holdings (Malaysia) Bhd’s existing businesses. The logistics segment posted stronger revenue growth of 6% while revenue for the marketing and distribution segment was flattish, growing at about 0.9%. Logistics remained the largest revenue contributor, accounting for 51% of total revenue.
As for the operating profit in 2QFY18, it fell 12% y-o-y. Despite a better performance posted by the logistics segment, which delivered an improvement in margin from 1.15% to 1.52%, the group’s profit was dragged down by lower contribution from the marketing and distribution segment. Margin for the marketing and distribution segment was significantly lower at 1.36% compared with the 2.31% registered in 2QFY17. This has resulted in a decline in the group’s operating margin from 1.71% to 1.45%. Meanwhile, the others segment posted a small profit versus a loss incurred in 2QFY17.
Stripping out allowance of inventory obsolescence, inventories write-off and other non-operating items, DKSH reported a core net profit of RM33.3 million in the first half of FY18 (1HFY18), a 14.2% y-o-y increase. The results were in line with our expectation, accounting for 55% of our full-year estimate. 1HFY18 results were largely supported by a stronger 1QFY18 but 2QFY18’s performance was uninspiring with operating profit falling 12% y-o-y on lower margin for the marketing and distribution segment.
Although this segment’s 2QFY18 revenue improved by 0.9% y-o-y, operating cost increased at a faster pace of 1.9% due to the shift in product mix and higher cost base to support future growth. Our earnings forecasts remain unchanged and we expect DKSH to post a quarter-on-quarter improvement in 3QFY18 profit due to higher consumer spending on the back of the transition of the goods and services tax from 6% to 0% effective June 1. — PublicInvest Research, Aug 9