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Thursday, August 16, 2018

PublicInvest downgrades DKSH to neutral as sales to remain soft over the medium-term

Thursday, 16 Aug 20188:36 AM MYT


's earnings are not likely to grow sharply over the medium term as overall retail spending on non-discretionary products will remain soft, says PublicInvest Research.

The research house added that DKSH sales are not likely to pick up strongly during the three-month tax holiday during the transition from the Good and Services Tax to the Sales and Services Tax.

"The marketing & distribution (M&D) segment is expected to remain lacklustre in the next six months. Despite GST zerorisation between June and August 2018, sales are not expected to pick up strongly and we attribute this to a more muted retail spending on non-discretionary products.

"Post-SST implementation effective 1 September 2018, this segment could potentially experience slower sales until December 2018 (seasonal uptick due to festivities)," it said in its Thursday report.

PublicInvest cut its FY18-20F earnings forecast by 2-5% to factor in the lower margin for the M&D segment. It downgraded its rating on the counter to neutral with a reduced target price of RM4.25 from RM5 previously.

"This segment is also affected by a bad account which led to higher allowance of inventory obsolescence in 2QFY18 and this is expected to spill over to the subsequent quarter.

However, the research house is positive on the group's long-term prospects due to the country's growing middle-class, rising trend for outsourcing and market expansion into Asia.

PublicInvest said the logistics segment remains the key growth driver supported by the healthcare and telecommunication sub-segments.

"Profit margin for logistics has been improving gradually since 3QFY16 due to better product mix and gains on operational efficiencies. Given Malaysia’s low per capita spending on healthcare at USD386 versus regional average of USD520, we believe there is room for growth in the logistics segment in the long run."


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