Overview of DXN Holdings

DXN Holdings, a prominent player in the consumer staples sector in Malaysia, distributes its range of consumer products globally under a direct selling model. As of November 2024, the company has entered into a significant related party transaction involving an aircraft charter agreement aimed at enhancing group productivity and management flexibility.

Aircraft Charter Agreement

DXN has entered into an aircraft charter agreement (ACA) with Luxaviation San Marino Srl and ExecuJet Asia Pte Ltd to charter a Gulfstream G550 corporate jet for 12 months, starting November 6, 2024. The agreement includes a minimum commitment of 300 flight hours and is considered a related party transaction, as the aircraft is owned by LSJ Logistics limited, a wholly-owned subsidiary of LSJ Global Sdn Bhd, DXN’s major shareholder.

The aim of this agreement is to enhance overall group productivity by enabling key management and top-performing members to travel between key growth regions, such as Latin America and Asia, with greater ease and flexibility compared to commercial flights.

Financial Impact and Earnings Estimates

Based on the flight rates stated in the ACA (USD20,500 to USD22,000 per flight hour), the total cost for DXN’s minimum commitment of 300 flight hours amounts to USD6.15 million to USD6.60 million for the 12-month charter period. This translates to MYR26 million to MYR28 million, assuming a USD/MYR exchange rate of 4.30.

Imputing this cost, Maybank Investment Bank Berhad has lowered its FY25E/FY26E earnings estimates for DXN by 3% and 5%, respectively. The FY27E estimates remain unchanged.

Share Price: MYR 0.57

12-month Price Target: MYR 0.80 (+47%)

Previous Price Target: MYR 0.84

Recommendation: BUY

Company Description and Statistics

DXN Holdings has a market capitalisation of MYR 2.7 billion (USD 619 million) with 4,825 issued shares. The company’s 52-week high/low share prices are MYR 0.71 and MYR 0.57, respectively. The major shareholders include LSJ Global Sdn Bhd (68.0%) and Gano Global (13.3%).

DXN Holdings distributes consumer products globally under a direct selling model.

Price Performance

Over the past year, DXN Holdings has experienced a decline in share price performance. The absolute and relative performance to the Kuala Lumpur Composite Index over the last 1 month, 3 months, and 12 months are as follows:

• 1 Month: Absolute: -6%, Relative: -5%
• 3 Months: Absolute: -8%, Relative: -11%
• 12 Months: Absolute: -16%, Relative: -24%

Financial Performance

DXN Holdings has shown consistent growth in revenue and profit over the past few years. Here are the key financial metrics:

ESG Initiatives and Performance

DXN Holdings has a comprehensive sustainability policy, focusing on product health and safety, energy consumption, and waste management. Here are some of the key ESG metrics and initiatives:

Environmental Initiatives

• Incorporating recommendations of the Task Force on Climate-related Financial Disclosures (TFCD).
• Majority of Scope 1 GHG emissions come from the manufacturing process, particularly during the drying stage of natural ingredients like Ganoderma.
• Invested MYR 4.2 million in the installation of a solar panel system in 2021 to reduce reliance on non-renewable energy sources.
• Initiatives to reduce waste through improved storage, waste segregation methods, and use of recyclable materials.

Governance Metrics

• DXN’s board of directors comprises 8 members, with 63% being independent non-executive directors, aligning with the Malaysian Code of Corporate Governance (MCCG).
• The BOD male-to-female ratio is 62:38, meeting the recommended MCCG practice of at least 30% women directors for large companies.
• The CEO’s remuneration package is MYR 0.95 million, representing 0.2% of DXN’s FY24 pre-tax profit, while the BOD’s total remuneration package equals MYR 5.1 million (1.1% of pre-tax profit).
• DXN has been audited by KPMG PLT since its public listing in 2023.

Social Metrics

• DXN employed 3,374 staff in FY24, with a 51:49 male-to-female ratio.
• Comprehensive quality control processes implemented throughout all production stages.
• Various domestic and foreign certifications for goods manufacturing practices, quality management systems, and environmental management systems.
• Random product sampling ensures internal product quality standards are met, with no cases of non-compliance resulting in death, illness, or adverse health effects in FY24.

Quantitative and Qualitative ESG Scores

DXN Holdings has been assessed using a proprietary ESG scoring methodology. The evaluation is based on quantitative, qualitative, and ESG targets, with the following scores:

• Quantitative Score: 63
• Qualitative Score: 50
• Target Score: 67
• Overall ESG Score: 60 (above average)

Risk Factors

Several risk factors could impact DXN Holdings’ earnings estimates, price target, and rating:

• High concentration of sales in Latin America poses a risk if any country-specific issues arise.
• Sharp depreciation in USD/EUR against MYR will affect earnings as over 90% of sales are denominated in foreign currency.

Conclusion

Despite the additional cost burden of the aircraft charter agreement, DXN Holdings aims to enhance overall group productivity and management flexibility. The company continues to demonstrate strong financial performance and commitment to sustainability, making it a viable investment option with a BUY recommendation and a 12-month price target of MYR 0.80.