QL Resources Berhad (QL) needs no introduction within the investment community. It is a darling stock among investors and celebrated its 20th anniversary as a public listed company in 2020. Over the past 2 decades, QL has achieved remarkable growth, with a compounded annual growth rate (CAGR) of 14.6% in revenue and 12.3% in profit before tax (PBT). Its loyal shareholders have enjoyed an impressive return on investment of 26.1% CAGR over this period.
Meanwhile,
DXN Holdings Berhad (DXN), founded in 1993, recently reported a pretax profit
of RM479m and a PATAMI (Profit After Tax and Minority Interests) of RM311m in
its FY24, which ended in February 2024—31 years after its establishment.
For
context, during a similar 31-year period following its inception in 1987, QL
recorded a pretax profit of RM255m and a PATAMI of RM206m in FY18.
DXN
also boasts a strong net cash position, unlike QL, which operates in a net debt
position. Additionally, DXN has a dividend policy of distributing at least 50%
of its net profit to shareholders, offering a more attractive dividend yield
compared to QL.
Separately,
did you know that DXN and Nestlé Malaysia are currently generating similar
profits? However, Nestlé’s market capitalisation stands at
RM21,297m—approximately 8.2x larger than DXN’s market cap of RM2,592m.
While
it's not an exact comparison, the disparity is striking. Adding to this, DXN
has a net cash position of RM578m, whereas Nestlé is in a net debt position of
RM921m. Furthermore, DXN offers a compelling dividend yield of 7.1%, compared
to Nestlé’s lower dividend yield of 2.6%.
Despite
its impressive three-decade track record, favorable growth outlook (as stated
in the company’s financial reports), and a solid balance sheet, DXN is
currently trading at a trailing 12-month price-to-earnings ratio of just 8x.
This valuation comes alongside a compelling dividend yield of 7.1%.
Potential
factors influencing DXN’s valuation:
a) Stigma around delisted and relisted stocks: Most delisted and subsequently relisted stocks on Bursa Securities trade below their relisting IPO price. However, unlike most of these companies, DXN continues to achieve increasing top-line and bottom-line growth after its relisting.
b) Private
jet leasing from a related party. Financial market columnist Pankaj Kumar has
shared his views on this related-party transaction, which lead me to believe it
is fair and not as negative as the market perceives (https://www.thestar.com.my/business/insight/2024/11/23/getting-related-party-transactions-right)
c) Multi-level marketing (MLM) business model: It is worth noting that DXN manufactures over 70% of its SKUs in-house. MLM is primarily a distribution channel for its products. In fact, this MLM distribution model has significantly driven its business growth as members continue to multiply.
d) Frontier market risks: Operating in developing
markets presents significant growth opportunities but also exposes DXN to
geopolitical and economic risks.
Beyond
stock performance, DXN’s achievements under the leadership of Datuk Lim Siow
Jin are noteworthy. The company has grown into Malaysia’s largest MLM firm with
a global presence, generating over RM300m in annual net profit. This is a
remarkable accomplishment that Malaysians can take pride in.
Moreover,
DXN has created jobs, contributed to government revenues, and supported
Malaysia’s tourism industry by attracting large numbers of overseas members to Malaysia.
The
critical questions remain: Will DXN continue its growth trajectory? And will
the market eventually re-rate the stock? Only time will tell.
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