Stronger ringgit likely to affect DXN earnings

PETALING JAYA: With the ringgit expected to strengthen further, DXN Holdings Bhd’s earnings may be at risk of declining from continued foreign currency translation losses, says Maybank Investment Bank Research (Maybank IB).

Going into the second half of its financial year 2026 (2H26), top line growth may continue to face challenges if the ringgit strengthens further, as more than 90% of group sales are from outside the country, according to the research house.

Given expectations of foreign exchange translation headwinds, it had downgraded the stock from a “buy” to “hold” and lowered its target price to 55 sen a share from 69 sen earlier.

Meanwhile, CGS International (CGSI) Research retained an “add” call on DXN with a target price of 68 sen a share, supported by its 10% core net profit compounded annual growth rate in FY26-FY28.

It said DXN was trading at an undemanding 9.3 times 2026 price-to-earnings, a 13% discount to its peers, which it viewed as justified given its greater exposure to frontier markets, which generally carry a higher country risk premium and attractive FY26-FY28 dividend yields of 8% to 11%.

As the group’s earnings growth has disappointed investors in recent times, CGSI Research sees stronger earnings delivery as a key rerating catalyst.

The downside risks include adverse regulatory changes affecting sales and profit repatriation, further strengthening of the ringgit versus the US dollar and other currencies.

“DXN’s plans to mitigate the impact of foreign exchange movements via decentralising and localising operations in its major operating countries and by pegging the selling prices of products to their US dollar values would take time.

“This could pose downside risks as it estimates every 5% depreciation in the US dollar rate from its base case could lead to a 21% earnings decline for FY26,” CGSI Research said.

Maybank IB has adjusted for higher effective tax rates of 38% per annum versus 36.5% per annum previously.

Its FY26, FY27 and FY28 earnings estimates were reduced by 4%, 4% and 3%, respectively.

It cited several risk factors for its earnings estimates, price target and rating for DXN.

High concentration of sales in Latin America poses a risk to earnings if any country-specific risks arise, according to the research house.

Additionally, sharp depreciation in the US dollar and euro against the ringgit will affect its earnings as most of its sales are denominated in foreign currency.

DXN’s second quarter FY26 net profit of RM70mil, brought 1H26 net profit to RM144mil, reflecting 46% and 43% of Maybank IB’s and consensus full-year earnings estimates.

The earnings shortfall was largely due to a higher-than-expected effective tax rate.