This article first appeared in Capital, The Edge Malaysia Weekly on November 27, 2023 - December 3, 2023

Target Price: 90 sen BUY

MAYBANK INVESTMENT BANK RESEARCH (NOV 20): DXN hosted a group of analysts and fund managers at its manufacturing facility in Ningxia, China, on Nov 13. We were hosted by DXN CEO Teo Hang Ching, DXN Ningxia executive director Teo Pei Shin and DXN Ningxia operations director Pong Vui Mei. The facility, which spans 167 acres, has four factories housing production lines for spirulina tablets; solid beverages (powdered coffee and tea products); edible fungi mycelium powder; noodles; and ready-to-drink (RTD) coffee, tea and sparkling juice products.

The group has strategically positioned itself in China as an export hub given China’s proximity to key markets in Europe and the Middle East. DXN also hopes to obtain its direct selling licence in China, which will open up significant growth opportunities in an estimated RMB100 billion (RM65.56 billion) direct selling market, according to Euromonitor market research data. Until then, DXN is working on building its brand presence in the country through four recently launched RTD coffee products, which will be sold through retail supermarkets and convenience store outlets in China.

In the near term, DXN’s earnings growth will largely stem from its increasing members and sales per member in its high-growth markets in Latin America and its planned entry into the African region in 2024. The direct selling industry in China is potentially a large market for DXN but we do not expect the group to obtain its direct selling licence until 2026 at the earliest due to the lengthy government application process.

In the meantime, DXN hopes to move up the value chain with its newly developed RTD coffee, tea and sparkling juice product ranges aimed at their sales potential in Peru and Bolivia despite their higher price points. As RTD products are conventionally targeted towards out-of-home consumption, this portrays a move away from DXN’s traditional product offering which offers lower-price-point items for in-home consumption.

Target Price: RM1.50 HOLD

CGS-CIMB RESEARCH (NOV 20): Mr DIY announced a 3Q23 core net profit (CNP) of RM122.8 million, bringing the 9M23 CNP to RM400.9 million. We deem Mr DIY’s 9M23 results to be within expectations at 73% of our full-year forecast, but below the Bloomberg consensus at 70%. The higher year-on-year (y-o-y) CNP in 3Q23 was mainly driven by new store additions, easing input costs and a full reflection of price hikes undertaken in 3Q22.

We gather that management is keeping its annual new store guidance at 180, with growth upside potential from penetrating further into the underserved areas in East Malaysia. Management’s outlook appears cautious on weak consumer spending, which we believe could be due to spending shifting more towards services and experiential purchases.

While management tweaks its dividend policy from at least 40% payout to no less than 50%, with a target payout of about 50% to 65% going forward, the FY24F dividend yield we estimate works out to be just less than 3% even at the upper range of the payout.

We reiterate our “hold” call as we believe current valuations have accounted for its potential earnings growth and share price upside.

Target Price: 97 sen BUY

MIDF RESEARCH (NOV 21): The cumulative 9MFY23 performance came in at the higher end of our expectations. In addition to its existing e-government services, MyEG is actively expanding its earnings base locally and regionally with the upcoming launch of cross-border trade facilitation services with China and the Philippines.

Despite a 19.4% y-o-y increase in 3QFY23 revenue, MyEG’s earnings contracted 20.4% to RM120 million. However, after excluding the one-off gain of RM61.9 million that resulted from the listing of its investment in Agmo Holdings Bhd in 3QFY22, the normalised earnings increased 33.2% y-o-y. This was mainly attributable to the contribution from its Zetrix platform. In addition, the group’s profit margin expanded to 61.8% due to lower operating expenses.

The above also contributed to higher 9MFY23 earnings of RM337.5 million. This came in at the higher end of our expectations, making up 80.4% of our FY23 full-year earnings estimates.

We see little interruption to MyEG’s revenue generation capability at this juncture. This is because the group has received the extension from the Road Transport Department for a period of three years as well as the Immigration Department for a period of two years.

Target Price: RM4.36 HOLD

APEX SECURITIES (NOV 20): 3QFY23 net profit declined 3.8% y-o-y to RM459 million due to higher depreciation, but rose 31.9% quarter on quarter (q-o-q) owing to lower operating costs. Revenue for the quarter was flat at RM3.1 billion, mainly on lower postpaid revenue, while prepaid, wholesale and home fibre recorded a slight growth. For 9MFY23, normalised net profit of RM1.64 billion made up 88% of our forecast net profit of RM1.87 billion.

Postpaid revenue declined 2.2% y-o-y and 0.7% q-o-q to RM1.26 billion due to lower average revenue per user (ARPU) of RM67 that offset higher subscribers. Meanwhile, prepaid revenue grew 1.9% y-o-y and 0.2% q-o-q to RM1.15 billion with a flat ARPU of RM28 and higher subscribers.

Despite flattish revenue in 3QFY23, CelcomDigi is still on track to meet management’s guidance of growth in service revenue and flat to single-digit growth in Ebitda. However, management expects capital expenditure (capex) to accelerate in 4QFY23 as the current capex-to-revenue ratio of 7.9% is still behind its guidance of 15% to 18%.

We reiterate our “hold” recommendation on CelcomDigi, but with a higher target price of RM4.36 from RM4.08 as we roll over our valuation metrics to FY24.

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