DXN: Earnings Miss Forecasts Amid FX Headwinds; Buy Rating Maintained with MYR0.70 Target Price

Performance Review

The company’s first-half of fiscal year 2026 (1HFY26) results fell below expectations, primarily attributed to unfavourable foreign exchange movements. Despite the underlying growth in its core markets, the depreciation of various foreign currencies against the Malaysian Ringgit (MYR) significantly impacted reported earnings. The net profit of MYR144m for 1HFY26 represents a 5% year-on-year (YoY) decrease and accounts for only 40% of the full-year forecast. Consequently, RHB Investment Bank has revised its FY26-28F earnings forecasts downwards by 14%, 13%, and 13% respectively, leading to a target price adjustment.

Revenue for 1HFY26 remained relatively flat at MYR960m YoY, a direct consequence of currency translation effects. However, in local currency terms, key markets such as Peru, Bolivia, Mexico, India, Turkey, and Mongolia demonstrated robust like-for-like growth, ranging between 2% and an impressive 44%. While 1HFY26 EBITDA largely tracked the topline trend with a marginal 1% slip to MYR276m, net profit experienced a more significant 5% decline due to higher finance costs and an increased effective tax rate. The Group declared a second-quarter FY26 dividend per share (DPS) of 0.8 sen, bringing the 1HFY26 total DPS to 1.7 sen, consistent with 1HFY25, representing a payout ratio of 59%.

Future Outlook

Looking ahead, the company’s earnings growth is anticipated to be driven by sustained momentum in its major markets. Key strategies include continuous efforts to recruit new members, enhance member productivity through engagement initiatives, and the launch of new quality products. Capacity expansion is underway to meet rising demand, complemented by the introduction of new product categories to broaden market reach. Furthermore, efficiency gains coupled with annual price adjustments are expected to maintain a high gross profit margin of approximately 80%, even amid rising input and overhead costs. The entry into the Brazil market, leveraging its established Latin American network, is projected to contribute significantly to earnings over the next 3-4 years.

Investment Recommendation

RHB Investment Bank maintains its BUY recommendation for the company. The target price has been revised to MYR0.70, down from the previous MYR0.80, but still offers a substantial 29.6% upside from the last traded price of MYR0.54. This valuation implies an 11x FY26F P/E, which is below the consumer sector average, reflecting the highly regulated direct selling industry. Downside risks to this recommendation include potential delays in expansion plans and unfavourable regulatory changes.