Friday, May 17, 2013

Is DKSH still worth it?

Blankly, I do not know actually. People who read my blog would know that I actually look at the business and company first before looking at the stock. When I first discovered DKSH, I knew the company as its office was just quite near where I hang out usually, at that time. Now no more. There are a lot of brands which uses DKSH to distribute its products. Hence, if a person is observant, they would not miss the company. Usually the brand is the brand, say Enfagrow, the distributor can be DKSH. It does the distribution or market expansion thing for companies like Mead Johnson. People whom have kids will know the brand.

In fact, DKSH does extensive distribution for a lot of pharma brands, and of course people who are in the medical field would know DKSH as well. DKSH is into distribution of many products for many overseas brands in Malaysia as well as the region. In fact, if I call them a distributor, one day I may get a call and ask me not to term the company as a distributor but a "Market Expansion Company", which is precisely what they do.

Over the last few years, especially since the crisis, many Europe and US companies are looking for expansion. You can see it from Heineken's bid for the beer distribution and bottling business in F&N. Many of these companies are willing to pay a good price for prized Asian assets as long as they are good, strong and decently well managed. Why? Because when you want to expand, the best thing to have is a good well managed company so that you can hit the road running from Day 1.

Turning around sounds good, because usually it is cheap, but turning around are for turnaround experts. Look at Dell, Micheal Dell is now doing a turnaround but he is still doubting himself by not paying more for privatising Dell at its current stage. Hence turnaround is not easy.

As a CEO, if I want to say build my market presence in South East Asia, I would want to buy a good company not a bad one. And as said before, many of these companies are looking for good companies in Asia.

The next best thing to look for if you do not want to look for acquisition is to look for a market expansion company. Say, you have a decent brand in Europe (Germany). You do not have a presence in Asia, strong that is. To build that network, you cannot do it your own. It will take years. As I see it, DKSH is a good candidate. It has the billing, collection and distribution system and it is the best in Malaysia.

The beautiful thing is that many companies now could possibly be looking at expanding in Malaysia with this country being part of Asia. DKSH seems like a good fit in assisting.

When I looked at DKSH, it was trading at around RM0.70 - ridiculously cheap by today's standard. But DKSH was not a hit with investors then. It was most of the time untraded, just had a turnaround (remember the turnaround thing I said). But in this case, the company had all the things in place. It was a good company which probably needed better management of its system and finances. It was good but not excellent. I guess today it is moving towards excellence with the financial performance.

At RM0.70, though it was trading at some RM120 million market cap. Ridiculous. Remember I was putting a wild guess in my very early article of the company could be worth at least RM500 million. Now, at RM5.00++, it is trading at around RM800 million valuation. Can you think whether it is worth that amount?

Now, let's not think of PE, or profits or anything else in terms of the usual valuation. Would a business that wants to build a network like DKSH, be buying DKSH Malaysia at RM800 million? Coca-cola is spending billions to build a factory and getting the distribution network ready after the split from F&N. Even then it is not yet ready today, as I can see it. There are still issues with the system.

A company needs refining especially when you are into a new country, and if you can get some help, you will need all the help you can get. We have talked about Parkson facing challenges in the countries it is exploring into - like Vietnam, Indonesia. But there are things you need to do and you need to do. To build a business takes time and this is where I see the value is in for DKSH i.e. to help to speed up the building process.


Black Ink said...

Your comment on Coca-Cola probably explains why F&N's stock price has been unaffected. The market currently doesn't believe Coke poses a threat - interesting.

Thank you for honesty with regards to your Parkson purchase. You do stick your neck out when you decide to put this stuff online. It seems unfortunate that they haven't managed to turn things around. I do hope they succeed (get out of China ASAP). For everyones' sake.

felicity said...

Thanks, on F&N though, the stock is not that attractive, but yet expensive now. Performance is stuck-ed. Unlike Parkson where it is looking at option of expanding and addressing the drop in sales, F&N's task is seemingly tougher.

Unknown said...

What's DKSH Value. Cold it one day become 1 billion market capital. co. Could be

felicity said...

I don't know

Tan Kheng Soon said...

is dksh stock still worth buying at current price?

felicity said...

I would not know but based on PE ratio still not that high. One must however take note of the sale of assets in last year's performance

Big Sea said...

PE is almost 20, not cheap. With the size of DKSH, I don't see how it can generate aggressive growth.

It will probably be a slow and steady type company. If it continue to go up, I would probably switch my holding to Airport or F&N.

Big Sea said...

Personally I prefer a medium PE company with some imperfection to a perfect company with high PE.

felicity said...

Hi Big Sea

Dont think its 20x the PE. It is about 13x to 14x after deducting the profits from sale of land.

felicity said...

calculation is
PBT105.1 million - RM21.1 million (sales of assets which is non taxable) = RM84 million.

Net profit (assuming minus the exceptional item) = RM84 million - RM 23.446 = RM60.554 million.

Current market cap is RM840 million.
PE = RM840 million / RM60.554 million = 13.87x

Big Sea said...


Thanks for the details.

I just use a simple assumption of 32 Sen Annual EPS to come to a PE of 17.