A Hidden Gem Highlighted by CGS International Amid Market Weakness?

With the consumer discretionary sector underperforming in recent months, DXN’s current valuation could represent a unique opportunity for investors looking for long-term growth.

CGS highlighted how the Malaysian market showed strong gains earlier in the year, with the FBM KLCI rising 15% y-o-y in the first eight months of 2024. However, recent months have seen this momentum slow, with the index rising only 10% year-to-date by November.

This pullback seems disconnected from fundamentals, as Malaysia’s economy benefits from improving domestic demand, double-digit earnings growth, and ringgit strength.

Interestingly, CGS noted that valuations across the board remain at the lower end of historical ranges, offering a chance for investors to pick up quality stocks at a discount. This is where DXN caught my eye. Positioned as a leading player in the health and wellness sector but currently underappreciated by the market.

DXN is best known for its Ganoderma-based health supplements and wellness products, boasting a strong brand presence both in Malaysia and globally. Despite this, CGS flagged the consumer discretionary sector—where DXN operates—as one of the few lagging behind expectations this year. While third-quarter results were affected by a 13% appreciation in the ringgit, CGS believes this is a temporary headwind and maintains its confidence in DXN's ability to rebound.

What’s compelling is CGS's broader point about sectors like consumer discretionary catching up to full-year earnings expectations. With a growing health and wellness market, DXN appears to be well-positioned to benefit from this recovery.

CGS projects 14% earnings growth in 2024 and 11% in 2025, pointing to the broader recovery in Malaysian equities. They’ve specifically noted DXN as a laggard with significant upside potential, making it a standout candidate among consumer discretionary names.

For those looking to take advantage of the current market pullback, DXN could be the value pick you’ve been waiting for. As its earnings normalise and investor sentiment catches up to fundamentals, there’s a good chance this stock could re-rate higher.