KUALA LUMPUR (Aug 8): Hong Leong Investment Bank (HLIB) Research has initiated coverage of DKSH Holdings (Malaysia) Bhd at RM5.09 with a target price of RM5.43 based on a price-earnings multiple of 6.7 times (at +1.5 standard deviation of DKSH’s five-year average) on its FY2024 forecast earnings per share of 81.1 sen.

In a note on Tuesday (Aug 8), the research house said it expects flattish performance in FY2023 as it is mindful of the higher operational costs.

“Earnings growth in FY2024-2025 will be underpinned by the (i) expected growth in household income; as well as (ii) larger healthcare expenditure by both the public and private sectors.

“Our projections also represents a three-year CAGR (compounded annual growth rate) of 6.8% in earnings,” it said.

HLIB said there is a growing trend towards outsourcing distribution services as it is expensive for brand owners to establish and maintain their own distribution infrastructure.

“Managing an in-house distribution team incurs significant fixed costs, leading to reduced preference for internal distribution, especially post-pandemic.

“Outsourcing to operators like DKSH is cost-efficient and allows brand owners to focus on brand development and manufacturing.

“With DKSH's market leadership and the rising outsourcing trend, it is well-positioned to secure more clients and brands in the future,” it said.