DXN: Financial Performance Misses Expectations Amidst FX Headwinds, Long-Term Growth Initiatives Underway

The company reported a core net profit of MYR208.9 million for the first nine months of fiscal year 2026 (9MFY26), marking a 14.5% year-on-year decline. This performance fell short of both the investment bank’s and consensus full-year forecasts, meeting only 67% of the expected figures. Revenue for the period also saw a marginal dip of 1.8% year-on-year to MYR1.42 billion, while EBITDA decreased by 6.5% year-on-year to MYR407 million.

Performance Review and Underlying Factors

The weaker financial results were primarily attributed to unfavourable foreign exchange movements, with a stronger Malaysian Ringgit impacting reported figures and masking underlying local currency revenue growth in key emerging markets like Peru, Bolivia, and India. Additionally, higher overheads, particularly a significant increase in aircraft leasing costs—climbing to approximately MYR20 million in 9MFY26 from MYR2.2 million in 9MFY25—contributed to the EBITDA decline.

On a quarterly basis, 3QFY26 revenue declined 3.7% quarter-on-quarter to MYR463.3 million. This softer utilization was largely due to members stockpiling inventory in anticipation of a September 2025 price revision, particularly in Peru and the Middle East. The group declared a dividend per share (DPS) of 0.8 sen for 3QFY26, bringing the 9MFY26 DPS to 2.5 sen, reflecting a payout ratio of 60% compared to 55% in 9MFY25.

Future Outlook and Strategic Initiatives

Despite the recent setbacks, the investment bank maintains a positive long-term outlook, anticipating continued growth driven by strategic initiatives. Latin America is expected to remain a key market, with Brazil identified as a primary expansion focus. Plans include establishing a dedicated factory by the first half of 2027 to bolster supply chain resilience, mitigate logistics risks, and foster a self-sustaining country operating base. This initiative is further supported by a collaborative state partnership in Brazil, aiding in land access and regulatory facilitation.

In Malaysia, the company is also advancing a new factory in Kelantan, which is expected to enhance operational efficiency and incorporate high-technology machinery to meet future capacity demands. Alongside these infrastructure developments, continuous efforts to expand active membership through consistent engagement and product innovation, particularly in the premium cosmetics segment, are expected to fuel medium-term growth.

Investment Recommendation

The investment bank reiterated its BUY recommendation for the stock, despite cutting its target price to MYR0.66 from MYR0.70. This new target price implies a 30.1% upside potential. The valuation remains attractive, with robust demand sustained by strong local currency revenue growth in its core markets.

Key Risks

Potential downside risks include significant delays in expansion plans and adverse regulatory changes in key operating regions.