PETALING JAYA: DXN Holdings Bhd’s facilities in China, which comprise large-scale raw-material cultivation and manufacturing sites, will help the direct-marketing company gain superior economies of scale and margins.
According to CGS-CIMB Research, DXN’s China operations are gearing up to enter China’s growing fast-moving consumer goods (FMCG) markets, while laying the groundwork for a local direct-selling licence.
“Management said DXN established its presence in China in 2015 with an aim to secure a local direct-selling licence, which has stringent requirements, including at least three years of track record in a domestic trading business,” the research house said. DXN China is currently in its third year of operations.
It added that DXN is expected to file a licence application in the next two to three years.
“Meanwhile, with the completion of its beverage factory in July 2023, DXN Ningxia has started to produce its high-margin ready-to-drink health products to venture into China’s fast-moving consumer goods market in 2024, launching in Hangzhou, Chengdu and Xinyang, as a means to build initial brand awareness and subsequently export to its other operating countries,” CGS-CIMB Research said.
The research house maintained its “add” call on DXN, with a target price of 85 sen.
“We believe DXN’s current valuation is undemanding at 8.5 times CY24 price earnings (PE) (38% discount to its overall peers’ 10-year average mean; given its superior scale economies and margins driving a strong three-year earnings per share compounded annual growth rate of 15% (FY23- FY26), while offering attractive dividend yields of 5%-6%.