DXN Holdings Bhd’s share price has added 14.3% since it announced a dividend policy of paying out at least 50% of the group’s net profit to shareholders on Sept 23. To make its dividend policy more attractive, DXN said it would pay the dividend on a quarterly basis, with immediate effect.
The dividend payout could translate into attractive yield for shareholders, provided that DXN could maintain its strong 1QFY11 (FY ends Feb 28) earnings in the subsequent quarters.
The multi-level marketing (MLM) company reported a net profit of RM10.08 million or 4.43 sen a share in 1Q, which had doubled year-on-year (y-o-y). While revenue had only increased 4.7% y-o-y for the quarter, earnings were boosted by improved pre-tax margin to 18.5% from 10.1% due to better cost efficiencies in its core business.
If annualised, DXN’s full-year FY11 earnings per share could total 17.72 sen a share of which a minimum 50% payout would mean a gross distribution of at least 8.86 sen, or 7.4% yield based on DXN’s closing price of RM1.20 yesterday. In FY10, DXN posted a net profit of RM28.41 million or 12.38 sen a share.
There is currently no routine coverage on the stock, but two consumer sector analysts said DXN may start to attract more interest from the investing community, like another MLM outfit Hai-O Enterprise Bhd (Hai-O).
Hai-O
Hai-O was a stellar performer in the MLM industry, and its share price reflected that fact until recently when the counter faltered due to overstocking concerns.
The stock saw a strong run-up of 393% from its two-year low of RM1 on Oct 28, 2008 to reach a high of RM4.93 on March 17, 2010, beating the performance of Bursa Malaysia’s broader market.
But the stock’s rally had ended as the company had been affected by the revised direct selling act, which had tightened regulations in the MLM industry to stop members from front loading stocks, as this could subsequently lead to members not being able to sell the excess stocks.
“It (the Act) also deters MLM leaders/members who were previously front loading to continue their recruitment activities as they are now unable to make quick profits as they did previously,” said RHB Research in an earlier report.
Hai-O’s shares closed at RM3.20 last Friday near its nine-month low of RM2.96 recorded on Sept 1, 2010.
However, RHB Research states that “we believe that Hai-O will be able to pull through and come back stronger in the longer term, with members of higher quality and productivity”.
Market observers said DXN and other MLM players could restrategise their marketing plan to adhere with the revised direct selling Act. Nonetheless, they said the impact of the Act was less severe on DXN, whose stronger profit in 1Q was due to better operating efficiencies and not caused by a short spurt of growth in revenue due to its members front loading on stocks.
86% of revenue from a broad base of overseas market
DXN is an international MLM company founded by Datuk Dr Lim Siow Jin in 1993. It has more than 800,000 million active members. The company, which is based in Malaysia, is well known for its health product Ganoderma or “Ling Zhi mushroom” business.
Its product lines include dietary supplements, food and beverages, personal care products, household products and water treatment systems.
OSK Research in a trading idea note on Aug 13, 2010 states that almost 98% of the products sold via DXN’s MLM network is developed and produced by the company.
What is more interesting is that the group derives 86% of its revenue in FY10 ended Feb 28, 2010 from a broad base of emerging market countries with huge growth potentials like Mexico, Peru, Chile, Hungary, Poland, the Philippines and Indonesia. DXN had also recently established a business entity in Russia.
Lim Siow Jin, the founder who is also executive chairman/CEO of DXN, owns 45.94% of the company’s shares while Lim Boon Yee, DXN’s managing director, owns another 18.6% stake.
The stock closed seven sen higher at RM1.20 yesterday. It had gained 118.2% year to date and valued the company at 8.2 times FY10’s earnings.
This article appeared in The Edge Financial Daily, September 28, 2010.
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