[%pwQF%] Thanks for following up on the company.

I really like that they are the actual producer of the foodstuff that they are selling, as opposed to the likes of [%GpDY%] Malaysia . 

So far their performance has actually been quite good, in spite of the rest of the world slowing down they have continued to register improving sales and profits and maintained a very strong ROE of close to 25% on an annualized basis. 

Their dividend payout is also not bad, at around 55% so far. 

BUT, being such a global company operating in many emerging markets, I lose the visibility I would like to have in terms of their earnings and sustainability. Notwithstanding the fragile global supply chain too. 

I want to like them as a business and investment, but maybe they are just out of my circle of competence. 

Thanks for following up on them!

@jiaming8yap Thanks for following up on the company.

I really like that they are the actual producer of the foodstuff that they are selling, as opposed to the likes of $KLSE-AMWAY Malaysia . 

So far their performance has actually been quite good, in spite of the rest of the world slowing down they have continued to register improving sales and profits and maintained a very strong ROE of close to 25% on an annualized basis. 

Their dividend payout is also not bad, at around 55% so far. 

BUT, being such a global company operating in many emerging markets, I lose the visibility I would like to have in terms of their earnings and sustainability. Notwithstanding the fragile global supply chain too. 

I want to like them as a business and investment, but maybe they are just out of my circle of competence. 

Thanks for following up on them!

$AMWAY / 6351 (AMWAY (MALAYSIA) HOLDINGS BERHAD)

Checking up on $KLSE-DXN – A vertically-integrated business with a majority-owned production chain and expansive global distribution network

Initial write-up on them before they went IPO here, which covered most grounds: https://stockbit.my/post/11263983 


Quick overview:
*Integrated production facilities catering to global consumers: 13 manufacturing facilities around the world, with global manufacturing footprint of 450,000msq
India – 4
China – 3
MY – 2
Mexico – 2
Indonesia – 1
Dubai - 1 

*375 SKUs produced in-house out of 510 SKUs in their portfolio

*Downstream – 77 sales branches; 5.2mil active members as of 9MFY24.
FY23 Revenue RM1.6bil, breakdown by geography:
North America – 2% (9MFY24 – 1.5%)
Latin America – 52.4% (9MFY24 – 57.8%)
Middle East & North Africa 12.9% (9MFY24 – 9.5%)
Europe – 5.1% (9MFY24 – 5%)
Asia - 27.4% (9MFY24 – 25.9%)

**In-house biotech capabilities driving product innovations that could lead to improved output and ensure product efficacy
*Large In-House IT team supports Global Operations, with full ownership of software assets.


Recent developments: 
1.	New products: Ready to Drink (RTD) launched; Ready to Eat (RTE) soon to be launched. 
2.	> RM400 mil capex invested over last 3 years to support growth of production facilities. FY24 capex estimated RM118.3mil.
3.	Manufacturing footprint built-up expanded by over 300,00msq
4.	Expansion into Brazil would be their next market potential which they have begun operations in March 2024 (population of brazil is 5x larger than Bolivia & Peru combined) 


Financial Performance: 
•	9MFY24 total revenue has improved 11.4% YoY, driven by sales growth and expansion of DXN products (mainly RTD beverages) in Latin America & India. 
•	GP for past 3 years maintain around ~80%
•	FY23 – PBT & PATAMI Margin reduced slightly due to impairment of an Indonesian PPE, a provision for custom duty case of Daxen Morocco LLC and IPO related expenses.
•	9MFY24 PBT (27.2%) & PATAMI (17.4%) reduced marginally due to increase of employee benefit, higher donation and IPO expenses
•	However, normalised PBT, PATAMI and Margins are actually robust and show marginally increase. 
•	 In FY22, there was a one-off prosperity tax of 33% imposed on DXN industries in Malaysia
•	In FY23, there was higher tax expenses in Peru, Mexico, Morocco and additional tax on foreign sourced income remitted into Malaysia. 
•	In 9MFY24, they have stopped remittance of dividend from overseas branches and appealing for waiver from Bank Malaysia. Only when approved, they will remit back, in order to safeguard the effective tax rate.
•	Cost structure wise: majority 45% is mktg, distribution and selling expenses. Followed by 20% on raw mat, wip and trading inventories.
•	Cash flow generation remains strong to support consistent dividend distribution. Dividend policy of at least 50% of net profit, paid out quarterly basis. In 9MFY24, there has been a dividend payout of 55.9% to-date.

Some food for thought: 
-	Having diverse footprints mean needing to deal with many regulatory issues or changes. So far, they have been nimble and able to adapt with many case studies. They usually make the necessary provisions so that it would not have much material impact to their financial position.
-	For them to penetrate into a new market, they require around 2-3 years to sort out all the compliance, foreign investment policy and product registrations. Plus, they have some criterias to be met e.g.: that their members must make at least > USD50k and have 500 active members in order for them to consider expanding and setting up an office, which helps reduce capital risk. Their estimated expenditure would be RM2-3mil and mostly it would be inventory instead of warehouse or buildings. 
-	In regards to whether their current production facilities are able to keep up with the demand, they have extra capacity to cater for 3-4 years at any point of time. 
As setting up another new facilities require 2-3 years, it is an on-going practice & policy of DXN to invest every year, in major market where they would go in 3-4 years’ time. They allocate >RM100mil per year to set up product facilities to cater for demand few years to come.
-	On expansion to China: Since 2016, they have started investing in setting up manufacturing facilities and cultivation plants in China and was meaning to get the direct selling license. Unfortunately, 2019 government stopped giving out new licenses until now.