| | | | | Buy (Price target CHF75.00) | | UBS Research THESIS MAP | a guide to our thinking and what's where in this report | OUR THESIS IN PICTURES→ | | Q: What's the strength in end markets? We forecast organic growth to accelerate to c5% in H2'16e, and c6% in FY'17e. Markets remain fragile, but indicators are potentially past the trough, and so drags on DKSH's performance can now start to fall away (e.g., annualising down-trading which hurt Consumer margins). more→ Q: What's the self-help potential? We believe that DKSH can drive near double-digit EBIT growth via new business development and efficiency improvements. Structural top-line growth (we forecast a return to >7% organic growth) comes from attractive market dynamics, a leading position, and strong client relationships. Equally,... more→ Q: How will DKSH use its balance sheet? We expect a continued progressive dividend policy (c2% yield today), and see potential for special dividends to be announced (up to an additional 2% p.a. in our view). The current cCHF500m net cash is inefficient structure in our view, and with the two largest M&A opportunities now off the table we... more→ | | DKSH offers unique exposure to Emerging Market demand for Western products. Markets are weak, but we believe earnings momentum is set to inflect. The current valuation therefore looks attractive for a long-term structural story, with added upside from management actions to rebuild efficiency. The strength of the balance sheet is overlooked, but we see potential for special dividends with FY16. | | Market & macro indicators covering >75% of DKSH markets show signs of stabilisation. Our market analysis shows a large, accelerating outsourcing opportunity, while our benchmarking of 20 global distribution companies points to the potential upside in terms of efficiency. | | We believe DKSH continues to price in the lowest degree of implied long-term growth since mid-2015, despite having demonstrated the beginning of a growth re-acceleration with H1'16 results and the success of management actions on the market. Trading on c12x FY17e EV/EBITA (c20% below peers), we continue to see the business as undervalued. The market is also overlooking the... more→ | | 
Value drivers | Organic growth | EBITA margin | M&A spend | | FY16e | FY17e | FY16e | FY17e | p.a. (CHFm) | CHF91 upside | 6.7% | 9.2% | 2.7% | 3.0% | 55 | CHF75 target | 5.2% | 5.9% | 2.6% | 2.6% | 0 | CHF46 downside | 1.9% | 3.1% | 2.5% | 2.5% | 0 | Source: UBS | | | | | |
more→ | | DKSH is a market expansion services (MES) provider in Asian markets (>95% of sales). Its services help both western and Asian suppliers access markets for consumer goods,... more → |
| | | OUR THESIS IN PICTURES | return ↑ | Constant currency y/y growth in EBITA 
| We are past the trough in terms of EBIT growth, which can reaccelerate on management action… | Market data 
| …and can be helped by the fact that market data is no longer deteriorating (but remains weak). | DPS forecasts & potential special dividends 
| The strong net cash balance is overlooked and could translate into special dividends (total yield c4%)… | DKSH & peers – valuation premium above market (1yr fwd PE) 
| …while valuation has significantly lagged peers; we expect this gap to close as growth re-accelerates. | Sources for exhibits above: Company data, UBS Research |
| | | PIVOTAL QUESTIONS | return ↑ | Q: What's the strength in end markets? UBS VIEW We forecast organic growth to accelerate to c5% in H2'16e, and c6% in FY'17e. Markets remain fragile, but indicators are potentially past the trough, and so drags on DKSH's performance can now start to fall away (e.g., annualising down-trading which hurt Consumer margins). EVIDENCE Market indicators covering c75% of DKSH's sales show that muted trends remain, and H1'16 has been seen little improvement but also crucially with no sign of further deterioration. Infrastructure projects are underway in Thailand following significant political turmoil and could provide a stimulus in 2016. The Luxury/Lifestyle market looks set to remain weak given the structural change in China, but exposure here is in the process of being de-risked with divestments. WHAT'S PRICED IN? DKSH currently prices in a lower degree of long-term growth than at any time since our initial upgrade to Buy in mid-2015. Consensus forecasts organic growth to reaccelerate to 6-7% from FY17e, but by no means to return to the double-digit growth seen historically. |
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End-market review>95% of DKSH's sales come from Asian markets, which as shown below have largely been in a severe down-cycle since 2013. Although DKSH has continued to see a structural expansion of its business (e.g., broadening client relationships, signing new clients, gaining market share on behalf of clients), these weak market conditions have constrained growth. Although we do not believe there are any signs market conditions may turn into a cyclical tailwind yet, we do see potential for the drags to minimise as markets stabilise over end-2016 and into 2017. ThailandFigure 1: DKSH sales mix (2015) | | Figure 2: Thailand consumer confidence | 
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| Source: Company data | | Source: Thomson Financial |
Thailand consumer confidence remains weak, below even the mid-2015 level around the time of the coup, but other data looks more encouraging. The retail sales index has recovered into positive territory, imports have improved, and the number of tourist arrivals has stabilised in growth. Overall Thailand looks to be moving sideways somewhat in our view – but that is better than a further deterioration. Figure 3: Thailand retail sales & imports | | Figure 4: Thailand tourist arrivals | 
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| Source: Thomson Financial | | Source: Thomson Financial |
MalaysiaThe Malaysian market may have turned a corner, and DKSH noted at H1 that it had seen a recent improvement in conditions here. Consumer sentiment looks to have troughed at the start of 2016, and imports have remained strong (although there has been some recent weakness that needs monitoring). Figure 5: Malaysia consumer sentiment | | Figure 6: Malaysian import trends | 
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| Source: Thomson Financial | | Source: Thomson Financial |
SingaporeSingapore is a market that contributed to the more recent pressure on DKSH's sales growth, and while conditions aren't as weak as they were at the end of 2015, it is hard to see much improvement. The healthcare market predictably looks more resilient, but apparel/watches remains weak. Figure 7: Singapore retail sales | | Figure 8: Singapore retail sales breakdown | 
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| Source: Thomson Financial | | Source: Thomson Financial |
Greater China Hong Kong remains a challenging market, with the overall retail sales index -10% (although consumer imports just returned to growth). Equally, Taiwan has seen a continued decline in consumer confidence even if retail sales are in slight positive growth. Figure 9: Hong Kong consumer trends | | Figure 10: Taiwan consumer trends | 
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| Source: Thomson Financial | | Source: Thomson Financial |
JapanJapan has seen relatively steady, muted trends overall. More importantly for the Technology business, there appears to be little discernible increase in the Japanese machinery orders, although DKSH actually commented on a strong order backlog that they expected to deliver in H2. Figure 11: Japanese sales indices | | Figure 12: Japanese consumer confidence | 
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| Source: Thomson Financial | | Source: Thomson Financial |
| | | PIVOTAL QUESTIONS | return ↑ | Q: What's the self-help potential? UBS VIEW We believe that DKSH can drive near double-digit EBIT growth via new business development and efficiency improvements. Structural top-line growth (we forecast a return to >7% organic growth) comes from attractive market dynamics, a leading position, and strong client relationships. Equally, restructuring efforts can help rebuild margins (we forecast EBIT margins to stabilise in H2'16 before increasing thereafter). EVIDENCE Structural growth: Total demand outlook is robust with Asian middle classes forecast to increase spending by a 10% CAGR 2010-30 (source: World Bank). Market reports estimate that the MES channel only represents 20% of the total sales across Asia, while DKSH only holds a c2% share of this total market (c3% of addressable market). Outsourcing is growing with new client wins and increased share of business, e.g., top 200 clients use DKSH across >3 markets and at the 2015 CMD management reported an acceleration in outsourcing as muted market conditions are actually pushing more clients towards the MES channel. Profitability improvements: EBIT margins have fallen c50bps to c2.6%, whereas global peers have maintained or increased profitability. Weak markets have clearly not helped, but our analysis shows a widening gap to sector average efficiency levels, that i) current restructuring, and ii) a new CEO will aim to solve. WHAT'S PRICED IN? Consensus forecasts margins to fall again in FY16e, before stabilising and recovering c10bps p.a. thereafter. | |
Structural growth opportunityDKSH's track record suggests strong structural growth drivers: since 2010 DKSH has outperformed its end-markets by >45%. Although organic growth has slowed with weakening market conditions, it has continued this outperformance (even despite shedding some loss-making contracts through 2016: excluding these, organic growth today is already back to c7%). The market opportunity remains large and we expect this structural growth to continue: DKSH holds a c1.7% share today and is the recognised regional leader. Figure 13: Current market opportunity vs. share today | | Market size (USDbn) | Market size (CHFbn) | MES penetration | MES market (CHFbn) | DKSH sales (CHFbn) | DKSH share | Greater China | 1516 | 1472 | 19% | 280 | | 3.00 | 1.1% | Northeast Asia | 995 | 966 | 20% | 193 | | 0.60 | 0.3% | Southeast Asia | 469 | 455 | 23% | 105 | | 6.00 | 5.7% | Total | 2980 | 2893 | 20% | 578 | | 9.60 | 1.7% |
| Source: UBS estimates based on company and industry data |
Figure 14: Growth track record vs. GDP | | Figure 15: Organic sales index vs. GDP index | 
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| Source: Company data, UBS Economics, UBS estimates | | Source: Company data, UBS Economics, UBS estimates |
The drivers of this outperformance are as follows; we are particularly interested in DKSH's internal capabilities to drive client expansion and new market share wins: • Exposure to attractive market segments – as shown below, there are favourable structural drivers for DKSH with the expansion of the Asian middle classes boosting purchasing power – particularly for the international product portfolio that DKSH sells. • Market share gains – Of DKSH's c28,000 workforce, c3,500 are 'field marketeers' in the Consumer Goods BU who visit customer sites to ensure 'market hygiene' factors such as resale price maintenance, promotion observance, inventory levels, etc. Equally, DKSH has a large database of market intelligence, and presence across all channels, which it can use to drive superior sales growth than local competitors. • New business development – We believe that new business development has been the crucial offset to otherwise negative LFL sales growth – DKSH has been working to leverage client relationships to expand to new geographies, win new business etc. (e.g., the top 200 clients use DKSH across >3 markets and at the 2015 CMD management reported an acceleration in outsourcing). Figure 16: Demographics favourable | | Figure 17: Forecast spending growth | | Figure 18: DKSH client base | 
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| Source: DKSH | | Source: DKSH | | Source: DKSH |
Efficiency gains to comeAs shown below, i) DKSH has seen a declining EBIT margin, but more importantly ii) we identified in our sector note (UBS Support Services Distribution "What is best in class?" (Jun-16)) that DKSH actually was in the bottom-half of the sector for efficiency. Although DKSH may have been complacent at the start of the downturn, more recently restructuring efforts have been underway to improve profitability – although to date it has been hard for them to offset the negative market trends (e.g., customer down-trading; negative operational leverage within the luxury & lifestyle business, price competition on healthcare tenders). We believe that the net effect of negative market drags and positive underlying actions will see margins stabilise in H2'16e, and improve thereafter. We note that the new CEO, arriving in 2017, will also have a clear opportunity to recover profitability. Figure 19: EBITA margin | | Figure 20: GMROI*: DKSH below average efficiency | 
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| Source: Company data, UBS estimates | | Source: UBS Research, *Gross Margin Return on Inventory |
| | | PIVOTAL QUESTIONS | return ↑ | Q: How will DKSH use its balance sheet? UBS VIEW We expect a continued progressive dividend policy (c2% yield today), and see potential for special dividends to be announced (up to an additional 2% p.a. in our view). The current cCHF500m net cash is inefficient structure in our view, and with the two largest M&A opportunities now off the table we see scope for cash return to shareholders to accelerate with the FY16 results. EVIDENCE The balance sheet has swung from a Net Debt position of cCHF80m in 2011 to UBSe CHF540m Net Cash by end-2016e. Cashflow has been strong with minimal inventory or receivable write downs and strong working capital controls. This net cash position now represents c5% of sales. Assuming c4% is an on-going requirement to reassure clients over counterparty risk, our forecasts would see DKSH hold cCHF300m in 'excess cash' by FY19e. WHAT'S PRICED IN? Consensus does not forecast any change in capital allocation policy. Current dividend yield of 2.0% in FY16e is slightly below the sector average (2.8%). We estimate that the excess cash we identify could result in either: 3-4% additional growth in EBITA p.a. from M&A; or 2-3% additional yield p.a. | |
Current balance sheet position highly conservativeAs shown below, DKSH has built up a considerable net cash position. We recognize DKSH's position as an important counterparty to its clients and so the need to reassure over financial stability but holding >5% of sales in a net cash position looks inefficient to us (Average leverage across the sector 1.3x Net Debt/EBITDA). Below, we demonstrate the potential cash return if DKSH were to identify c4% of sales as a net cash requirement. Figure 21: Net Cash/(Debt) as % sales | | Figure 22: Net Cash position forecast (CHFm) | 
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| Source: Company data, UBS estimates | | Source: UBS estimates |
We believe that given DKSH did not participate in one of the largest potential acquisitions in its regional market (the sale of Li & Fung's distribution business to a Chinese conglomerate, DCH, for US$350m implies an EV/EBIT multiple of >21x), the chance of the board reviewing the balance sheet and accelerating the cash return policy is now even more likely by end-FY16. Below, we show what the excess cash position estimated above could translate into for a special dividend, and the resulting total yield. Figure 23: DPS and potential special DPS (CHF) | | Figure 24: Resulting potential dividend yield | 
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| Source: Company data, UBS estimates | | Source: UBS estimates |
| | | WHAT'S PRICED IN? | return ↑ | 
| Lowest level of long-term growth priced in since mid-2015
Source: UBS |
We believe DKSH continues to price in the lowest degree of implied long-term growth since mid-2015, despite having demonstrated the beginning of a growth re-acceleration with H1'16 results and the success of management actions on the market. Trading on c12x FY17e EV/EBITA (c20% below peers), we continue to see the business as undervalued. The market is also overlooking the potential for additional cash returns, in our view. Valuation multiplesDKSH is trading on c21x 1yr fwd PE today – always expensive, but still on a near-historical low premium to the wider market. We also note that DKSH holds its highest net cash positon today – on an EV/EBIT basis it remains below average. Figure 25: DKSH vs. European average 1yr fwd PE | | Figure 26: DKSH 1yr fwd EV/EBIT vs. average | 
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| Source: Thomson Financial | | Source: Thomson Financial |
We also note that compared to other defensive growth companies in our sector, DKSH has de-rated continually as its growth performance deteriorated. Given we believe we are at a turning point, we would expect DKSH to reverse at least some of this. So far in 2016, DKSH has not re-rated by anywhere near as much as Bunzl (now on a record valuation premium above the market) or SGS. Figure 27: DKSH vs. peers – 1yr fwd PE | | Figure 28: DKSH vs peers: premium above market | 
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| Source: Thomson Financial | | Source: Thomson Financial |
DKSH currently trades on c12x 1yr fwd EV/EBITA or a c20% discount to peers. Our price target of CHF75 would see DKSH trade on c14x, i.e., a c10% discount. Figure 29: Sub-sector distribution table | 
| Source: Thomson Financial |
| | | UPSIDE / DOWNSIDE SPECTRUM | return ↑ | 
Value drivers | Organic growth | EBITA margin | M&A spend | | FY16e | FY17e | FY16e | FY17e | p.a. (CHFm) | CHF91 upside | 6.7% | 9.2% | 2.7% | 3.0% | 55 | CHF75 target | 5.2% | 5.9% | 2.6% | 2.6% | 0 | CHF46 downside | 1.9% | 3.1% | 2.5% | 2.5% | 0 | Source: UBS | | | | | |
| Increase PT to CHF75 (from CHF71); see attractive risk reward as we're past the turning point |
Upside (CHF91): Although trends currently appear weak, acceleration in emerging markets growth would see DKSH well-placed to benefit with a return to low double digit growth, with good operational leverage following the restructuring efforts through 2015-16. Continuing a low level of M&A spend also drives earnings upgrades, but we still leave excess cash on the balance sheet. In total we see scope for c25% EPS upgrades and a return to valuation highs in our upside scenario. Base (CHF75): We update our forecasts for the H1 results and current market trends described above – our base case considers a stabilizing Asian market backdrop, continued restructuring efforts to defend profitability, and ultimately a re-acceleration to high-single digit growth from FY17e.
Our FY16-18e revenue estimates increase by 2-3%; EBITA estimates rise by 2-3%, but EPS estimates fall by 5% in FY16e (due to mark-to-market FX hedging losses) and ~1% in FY17-18e (due to higher financial costs).
However, the EBIT upgrades, continued strong cash performance, and slightly more solid growth outlook sees our DCF-derived Price Target increase to CHF75 (from CHF71). Downside (CHF46): With another downturn in emerging markets, we would expect DKSH’s sales growth to slow further and limit any margin expansion despite internal self-help measures, leading to c15% earnings downgrades by FY18e. However, capital outflows from EM assets would also likely drive a de-rating, in our view. Figure 30: Scenario drivers | 
| Source: UBS estimates, company data |
| | | COMPANY DESCRIPTION | return ↑ | Market Cap | CHF4.05bn | Shares Outstanding | 64.3m | Industry | Industrial Services | Region | Europe | Website | www.dksh.com |
DKSH is a market expansion services (MES) provider in Asian markets (>95% of sales). Its services help both western and Asian suppliers access markets for consumer goods, healthcare products, specialty chemicals and technology. Beyond the core distribution and sale of goods, services also include sourcing, regulatory support, market research, driving market penetration, arranging end-to-end logistics, after-sales services, and feeding data and market feedback to suppliers. Its largest country exposures are Thailand (c35%), Greater China and Malaysia. Industry outlook The market for Asian Market Expansion Services is forecast to grow at a long-term average of 7.4% by a DKSH-commissioned 3rd party study. This is a combination of strong underlying market drivers (expansion of inner-Asian trade, increased spending on Asian middle classes), and increased outsourcing (as companies use MES providers to accelerate growth and reduce operational risk in the region). Current end markets are weak in Asia and much depends on the global macro outlook | Revenues by region (FY15) 
Source: Company data EBIT by product segment (FY15) 
Source: Company data |
| | | | DKSH Holding AG (DKSH.S) | | | | | | | | | | | Revenues | 9,588.6 | 9,843.6 | 10,139.8 | 10,671.0 | 5.2 | 11,298.2 | 5.9 | 12,133.0 | 13,029.5 | 13,992.2 | Gross profit | 1,421.7 | 1,405.3 | 1,469.9 | 1,483.3 | 0.9 | 1,570.5 | 5.9 | 1,686.5 | 1,811.1 | 1,944.9 | EBITDA (UBS) | 309.7 | 308.2 | 331.4 | 321.4 | -3.0 | 347.7 | 8.2 | 378.1 | 408.5 | 441.4 | Depreciation & amortisation | (43.4) | (42.3) | (71.6) | (48.0) | -32.9 | (50.8) | 5.9 | (54.6) | (58.6) | (63.0) | EBIT (UBS) | 266.3 | 265.9 | 259.8 | 273.4 | 5.2 | 296.9 | 8.6 | 323.5 | 349.9 | 378.5 | Associates & investment income | 5.9 | 6.8 | 4.6 | 0.0 | - | 2.0 | - | 2.0 | 2.0 | 2.0 | Other non-operating income | 0.0 | 0.0 | 0.0 | 0.0 | - | 0.0 | - | 0.0 | 0.0 | 0.0 | Net interest | (1.7) | (6.2) | 3.4 | (19.7) | - | (5.7) | 70.9 | (5.7) | (5.7) | (5.7) | Exceptionals (incl goodwill) | 40.0 | 0.0 | 6.5 | 0.0 | - | 0.0 | - | 0.0 | 0.0 | 0.0 | Profit before tax | 310.5 | 266.5 | 274.3 | 253.7 | -7.5 | 293.2 | 15.6 | 319.7 | 346.2 | 374.7 | Tax | (68.8) | (71.0) | (74.7) | (68.5) | 8.3 | (79.2) | -15.6 | (86.3) | (93.5) | (101.2) | Profit after tax | 241.7 | 195.5 | 199.6 | 185.2 | -7.2 | 214.0 | 15.6 | 233.4 | 252.7 | 273.6 | Preference dividends | 0.0 | 0.0 | 0.0 | 0.0 | - | 0.0 | - | 0.0 | 0.0 | 0.0 | Minorities | (13.0) | (3.3) | 3.0 | 0.0 | - | (2.0) | - | (2.2) | (2.4) | (2.5) | Extraordinary items | 0.0 | 0.0 | 0.0 | 0.0 | - | 0.0 | - | 0.0 | 0.0 | 0.0 | Net earnings (local GAAP) | 228.7 | 192.2 | 202.6 | 185.2 | -8.6 | 212.0 | 14.5 | 231.2 | 250.4 | 271.0 | Net earnings (UBS) | 188.7 | 192.2 | 196.1 | 185.2 | -5.6 | 212.0 | 14.5 | 231.2 | 250.4 | 271.0 | Tax rate (%) | 22.2 | 26.6 | 27.2 | 27.0 | -0.9 | 27.0 | 0.0 | 27.0 | 27.0 | 27.0 |
| | | | | | | | | | | EPS (UBS, diluted) | 2.91 | 2.96 | 3.01 | 2.84 | -5.9 | 3.22 | 13.6 | 3.49 | 3.89 | 4.21 | EPS (local GAAP, diluted) | 3.53 | 2.96 | 3.11 | 2.84 | -8.9 | 3.22 | 13.6 | 3.49 | 3.89 | 4.21 | EPS (UBS, basic) | 2.95 | 2.96 | 3.01 | 2.84 | -5.9 | 3.22 | 13.6 | 3.49 | 3.89 | 4.21 | Net DPS (CHF) | 1.10 | 1.15 | 1.30 | 1.43 | 10.0 | 1.65 | 15.6 | 1.82 | 2.00 | 2.20 | Cash EPS (UBS, diluted) | 3.58 | 3.61 | 4.11 | 3.57 | -13.2 | 3.99 | 11.9 | 4.31 | 4.80 | 5.19 | Book value per share | 20.34 | 22.52 | 23.46 | 24.56 | 4.7 | 26.20 | 6.7 | 27.87 | 30.87 | 33.04 | Average shares (diluted) | 64.81 | 64.88 | 65.07 | 65.32 | 0.4 | 65.82 | 0.8 | 66.32 | 64.33 | 64.33 |
| | | | | | | | | | | Tangible fixed assets | 127.6 | 133.2 | 128.5 | 130.6 | 1.7 | 132.9 | 1.7 | 135.3 | 137.9 | 140.7 | Intangible fixed assets | 139.3 | 158.7 | 160.6 | 160.6 | 0.0 | 160.6 | 0.0 | 160.6 | 160.6 | 160.6 | Investments | 36.7 | 39.7 | 58.4 | 58.4 | 0.0 | 58.4 | 0.0 | 58.4 | 58.4 | 58.4 | Other assets | 24.8 | 25.7 | 24.6 | 24.6 | 0.0 | 24.6 | 0.0 | 24.6 | 24.6 | 24.6 | Total fixed assets | 328.4 | 357.3 | 372.1 | 374.2 | 0.6 | 376.5 | 0.6 | 378.9 | 381.5 | 384.3 | Net working capital | 798.0 | 861.2 | 734.5 | 764.6 | 4.1 | 792.9 | 3.7 | 823.1 | 853.5 | 883.9 | Cash | 324.5 | 393.6 | 571.4 | 639.8 | 12.0 | 727.5 | 13.7 | 817.0 | 913.4 | 1,017.2 | Short term debt | 0.0 | 0.0 | 0.0 | 0.0 | - | 0.0 | - | 0.0 | 0.0 | 0.0 | Long term debt | (110.1) | (101.1) | (102.6) | (102.6) | 0.0 | (102.6) | 0.0 | (102.6) | (102.6) | (102.6) | Preferred shares | 0.0 | 0.0 | 0.0 | 0.0 | - | 0.0 | - | 0.0 | 0.0 | 0.0 | Net (debt) / cash | 214.4 | 292.5 | 468.8 | 537.2 | 14.6 | 624.9 | 16.3 | 714.4 | 810.8 | 914.6 | Other debt-deemed liabilities | 0.0 | 0.0 | 0.0 | 0.0 | - | 0.0 | - | 0.0 | 0.0 | 0.0 | Provisions & non-debt deemed liabs | (25.5) | (21.1) | (35.7) | (35.7) | 0.0 | (35.7) | 0.0 | (35.7) | (35.7) | (35.7) | Total equity | 1,315.3 | 1,489.9 | 1,539.7 | 1,640.3 | 6.5 | 1,758.6 | 7.2 | 1,880.7 | 2,010.1 | 2,147.0 | Minority interests | (37.9) | (40.9) | (30.5) | (30.5) | 0.0 | (28.5) | 6.6 | (26.3) | (24.0) | (21.4) | Common s/h equity | 1,277.4 | 1,449.0 | 1,509.2 | 1,609.8 | 6.7 | 1,730.1 | 7.5 | 1,854.4 | 1,986.1 | 2,125.6 | Operating invested capital | 1,064.2 | 1,157.7 | 1,012.5 | 1,044.8 | 3.2 | 1,075.3 | 2.9 | 1,107.9 | 1,140.9 | 1,174.1 | Total capital employed | 1,100.9 | 1,197.4 | 1,070.9 | 1,103.2 | 3.0 | 1,133.7 | 2.8 | 1,166.3 | 1,199.3 | 1,232.5 |
| | | | | | | | | | | EBIT (UBS) | 266.3 | 265.9 | 259.8 | 273.4 | 5.2 | 296.9 | 8.6 | 323.5 | 349.9 | 378.5 | Depreciation & amortisation | 43.4 | 42.3 | 71.6 | 48.0 | -32.9 | 50.8 | 5.9 | 54.6 | 58.6 | 63.0 | Net change in working capital | (5.1) | (7.7) | 66.9 | (30.1) | - | (28.2) | 6.3 | (30.2) | (30.4) | (30.4) | Net interest | (5.6) | (4.0) | (3.5) | (19.7) | NM | (5.7) | 70.9 | (5.7) | (5.7) | (5.7) | Tax paid | (81.7) | (81.9) | (70.9) | (68.5) | 3.4 | (79.2) | -15.6 | (86.3) | (93.5) | (101.2) | Other operating | (32.9) | 4.2 | (93.1) | 0.0 | - | 0.0 | - | (0.2) | (0.4) | (0.5) | Operating cash flow | 184.4 | 218.8 | 230.8 | 203.1 | -5.7 | 234.6 | 9.7 | 255.6 | 278.6 | 303.6 | Tangible capital expenditure | (0.4) | (34.4) | (52.1) | (50.2) | 3.7 | (53.1) | -5.9 | (57.0) | (61.2) | (65.8) | Intangible capital expenditure | 0.0 | 0.0 | 0.0 | 0.0 | - | 0.0 | - | 0.0 | 0.0 | 0.0 | Equity free cash flow | 184.0 | 184.4 | 178.7 | 152.9 | -14.4 | 181.5 | 18.7 | 198.6 | 217.4 | 237.8 | Net (acquisitions) & disposals | (1.4) | (37.4) | 69.2 | 0.0 | - | 0.0 | - | 0.0 | 0.0 | 0.0 | Equity dividends paid | (60.3) | (70.8) | (74.8) | (84.6) | -13.0 | (93.7) | -10.8 | (109.1) | (121.0) | (134.1) | Share issues / (buybacks) | 0.0 | 0.0 | 0.0 | 0.0 | - | 0.0 | - | 0.0 | 0.0 | 0.0 | Net other cash flows | 6.6 | 1.9 | (12.3) | 0.0 | - | 0.0 | - | 0.0 | 0.0 | 0.0 | Cash flow (inc)/dec in net debt | 128.9 | 78.1 | 160.8 | 68.4 | -57.5 | 87.8 | 28.4 | 89.4 | 96.4 | 103.8 | FX / non cash items | 31.3 | 0.0 | 15.5 | 0.0 | - | 0.0 | - | 0.0 | 0.0 | 0.0 | Balance sheet (inc)/dec in net debt | 160.2 | 78.1 | 176.3 | 68.4 | -61.2 | 87.8 | 28.4 | 89.4 | 96.4 | 103.8 |
Source: Company accounts, UBS estimates. (UBS) metrics use reported figures which have been adjusted by UBS analysts.Cash EPS (UBS, diluted) is calculated using UBS net income adding back depreciation and amortization.
DKSH Holding AG (DKSH.S) | | | | | | | | | P/E (local GAAP, diluted) | 21.5 | 23.5 | 22.3 | 23.9 | 21.0 | 19.4 | 17.4 | 16.1 | P/E (UBS, diluted) | 26.1 | 23.5 | 23.0 | 23.9 | 21.0 | 19.4 | 17.4 | 16.1 | P/CEPS | 21.0 | 19.3 | 16.9 | 19.0 | 17.0 | 15.7 | 14.1 | 13.0 | Equity FCF (UBS) yield % | 3.9 | 4.1 | 4.0 | 3.5 | 4.2 | 4.6 | 5.0 | 5.5 | Net dividend yield (%) | 1.4 | 1.7 | 1.9 | 2.1 | 2.4 | 2.7 | 3.0 | 3.2 | P/BV x | 3.7 | 3.1 | 3.0 | 2.8 | 2.6 | 2.4 | 2.2 | 2.1 | EV/revenues (core) | 0.5 | 0.4 | 0.4 | 0.4 | 0.3 | 0.3 | 0.3 | 0.2 | EV/EBITDA (core) | 15.1 | 13.5 | 12.1 | 11.8 | 10.7 | 9.6 | 8.6 | 7.8 | EV/EBIT (core) | 17.5 | 15.6 | 15.4 | 13.9 | 12.5 | 11.2 | 10.0 | 9.1 | EV/OpFCF (core) | 19.1 | 17.1 | 16.8 | 15.1 | 13.5 | 12.0 | 10.8 | 9.8 | EV/op. invested capital | 4.3 | 3.7 | 3.7 | 3.7 | 3.5 | 3.3 | 3.1 | 3.0 |
| | | | | | | | | Market cap. | 4,768.5 | 4,446.1 | 4,468.3 | 4,358.4 | 4,358.4 | 4,358.4 | 4,358.4 | 4,358.4 | Net debt (cash) | (214.4) | (292.5) | (468.8) | (537.2) | (624.9) | (714.4) | (810.8) | (862.7) | Buy out of minorities | 156.0 | 39.6 | 36.0 | 30.5 | 28.5 | 26.3 | 24.0 | 21.4 | Pension provisions/other | 0.0 | 0.0 | 21.5 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | Total enterprise value | 4,710.1 | 4,193.2 | 4,057.0 | 3,851.7 | 3,762.0 | 3,670.4 | 3,571.6 | 3,517.2 | Non core assets | (36.7) | (39.7) | (58.4) | (58.4) | (58.4) | (58.4) | (58.4) | (58.4) | Core enterprise value | 4,673.4 | 4,153.5 | 3,998.6 | 3,793.3 | 3,703.6 | 3,612.0 | 3,513.2 | 3,458.8 |
| | | | | | | | | Revenue | 8.3 | 2.7 | 3.0 | 5.2 | 5.9 | 7.4 | 7.4 | 7.4 | EBITDA (UBS) | -1.7 | -0.5 | 7.5 | -3.0 | 8.2 | 8.7 | 8.1 | 8.1 | EBIT (UBS) | -2.3 | -0.2 | -2.3 | 5.2 | 8.6 | 9.0 | 8.2 | 8.2 | EPS (UBS, diluted) | 8.4 | 1.8 | 1.7 | -5.9 | 13.6 | 8.2 | 11.6 | 8.3 | Net DPS | 15.8 | 4.5 | 13.0 | 10.0 | 15.6 | 10.0 | 10.0 | 10.0 |
| | | | | | | | | Gross profit margin | 14.8 | 14.3 | 14.5 | 13.9 | 13.9 | 13.9 | 13.9 | 13.9 | EBITDA margin | 3.2 | 3.1 | 3.3 | 3.0 | 3.1 | 3.1 | 3.1 | 3.2 | EBIT margin | 2.8 | 2.7 | 2.6 | 2.6 | 2.6 | 2.7 | 2.7 | 2.7 | Net earnings (UBS) margin | 2.0 | 2.0 | 1.9 | 1.7 | 1.9 | 1.9 | 1.9 | 1.9 | ROIC (EBIT) | 24.3 | 23.9 | 23.9 | 26.6 | 28.0 | 29.6 | 31.1 | 32.7 | ROIC post tax | 18.0 | 17.4 | 17.1 | 19.4 | 20.4 | 21.6 | 22.7 | 23.8 | ROE (UBS) | 15.4 | 14.1 | 13.3 | 11.9 | 12.7 | 12.9 | 13.0 | 13.2 |
| | | | | | | | | Net debt / EBITDA | (0.7) | (0.9) | (1.4) | (1.7) | (1.8) | (1.9) | (2.0) | (2.1) | Net debt / total equity % | (16.3) | (19.6) | (30.4) | (32.7) | (35.5) | (38.0) | (40.3) | (42.6) | Net debt / (net debt + total equity) % | (19.5) | (24.4) | (43.8) | (48.7) | (55.1) | (61.2) | (67.6) | (74.2) | Net debt/EV % | (4.6) | (7.0) | (11.7) | (14.2) | (16.9) | (19.8) | (23.1) | (26.4) | Capex / depreciation % | 0.9 | 81.3 | 72.8 | 104.4 | 104.4 | 104.4 | 104.4 | 104.4 | Capex / revenue % | 0.0 | 0.3 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | EBIT / net interest | NM | 42.9 | NM | 13.8 | 51.7 | 56.3 | 60.9 | 65.9 | Dividend cover (UBS) | 2.7 | 2.6 | 2.3 | 2.0 | 1.9 | 1.9 | 1.9 | 1.9 | Div. payout ratio (UBS) % | 37.3 | 38.8 | 43.1 | 50.4 | 51.3 | 52.1 | 51.4 | 52.2 |
| | | | | | | | | Others | 9,588.6 | 9,843.6 | 10,139.8 | 10,671.0 | 11,298.2 | 12,133.0 | 13,029.5 | 13,992.2 | Total | 9,588.6 | 9,843.6 | 10,139.8 | 10,671.0 | 11,298.2 | 12,133.0 | 13,029.5 | 13,992.2 |
| | | | | | | | | Others | 266.3 | 265.9 | 259.8 | 273.4 | 296.9 | 323.5 | 349.9 | 378.5 | Total | 266.3 | 265.9 | 259.8 | 273.4 | 296.9 | 323.5 | 349.9 | 378.5 |
Source: Company accounts, UBS estimates. (UBS) metrics use reported figures which have been adjusted by UBS analysts. | | | | | Forecast returns | Forecast price appreciation+10.7% | Forecast dividend yield2.3% | Forecast stock return+13.0% | Market return assumption4.3% | Forecast excess return+8.7% |
| Valuation Method and Risk Statement DKSH is exposed to a number of risks, including cyclicality (particularly in areas such as luxury goods, chemicals, and capital goods), exposure to geopolitically less stable countries (e.g., Thailand), adverse swings in working capital (given it is a low margin business), currency risk (largely translational), and the risk that suppliers could take their business away. Our PT is DCF derived with a terminal growth rate of 2.5%, WACC of 8.5%. Required Disclosures This report has been prepared by UBS Limited, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. For information on the ways in which UBS manages conflicts and maintains independence of its research product; historical performance information; and certain additional disclosures concerning UBS research recommendations, please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results. Additional information will be made available upon request. UBS Securities Co. Limited is licensed to conduct securities investment consultancy businesses by the China Securities Regulatory Commission. UBS acts or may act as principal in the debt securities (or in related derivatives) that may be the subject of this report. This recommendation was finalized on: 21 July 2016 07:49 PM GMT. Analyst Certification: Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner, including with respect to UBS, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. UBS Investment Research: Global Equity Rating Definitions 12-Month Rating | Definition | Coverage | IB Services | Buy | FSR is > 6% above the MRA. | 47% | 32% | Neutral | FSR is between -6% and 6% of the MRA. | 38% | 25% | Sell | FSR is > 6% below the MRA. | 15% | 21% | Short-Term Rating | Definition | Coverage | IB Services | Buy | Stock price expected to rise within three months from the time the rating was assigned because of a specific catalyst or event. | <1% | <1% | Sell | Stock price expected to fall within three months from the time the rating was assigned because of a specific catalyst or event. | <1% | <1% |
Source: UBS. Rating allocations are as of 30 June 2016.
1:Percentage of companies under coverage globally within the 12-month rating category.
2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months.
3:Percentage of companies under coverage globally within the Short-Term rating category.
4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided within the past 12 months. KEY DEFINITIONS: Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a forecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any change in the fundamental view or investment case. Equity Price Targets have an investment horizon of 12 months. EXCEPTIONS AND SPECIAL CASES: UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management, performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell: Negative on factors such as structure, management, performance record, discount. Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating. When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece. Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not registered/qualified as research analysts with FINRA. Such analysts may not be associated persons of UBS Securities LLC and therefore are not subject to the FINRA restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any, follows. UBS Limited: Rory McKenzie; Denis Moreau. UBS AG: Joern Iffert, CFA. Company Disclosures Company Name | Reuters | 12-month rating | Short-term rating | Price | Price date | DKSH Holding AG | DKSH.S | Buy | N/A | CHF66.90 | 20 Jul 2016 |
Source: UBS. All prices as of local market close.
Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing date 5.UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months. 7.Within the past 12 months, UBS Securities LLC and/or its affiliates have received compensation for products and services other than investment banking services from this company/entity. Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report. For a complete set of disclosure statements associated with the companies discussed in this report, including information on valuation and risk, please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention: Investment Research. DKSH Holding AG (CHF) 
Source: UBS; as of 20 Jul 2016 |
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