Navigating Tariffs via Diversified Manufacturing & Geographic Expansion

• DHB is up 50% since our previous report in March 2025, outperforming the S&P Personal Care Index, which rose 1%.
• Q3-FY2025 (ended March 2025) revenue grew 1% YoY, in line with our estimate. Management remains confident in achieving YoY revenue growth this year, following four consecutive years of growth: 2% in FY2021 and FY2022, 20% in FY2023, and 26% in FY2024.
• Trump’s tariffs have little direct impact on DHB due to its use of  manufacturing sites in both Canada and the U.S. However, there is a risk of a tariff-induced recession or economic slowdown, which could impact consumer spending on personal care products. Recent trade agreements with the U.K., and a temporary deal with China, coupled with a trade court ruling against Trump's tariffs (though temporarily nullified by appeal), suggest that Trump is likely to reverse or soften many of his administration's initial measures. 

• DHB’s products are  available at 30k+ distribution points, including established retail/pharmacy chains such as Shoppers Drug Mart, Walmart (NYSE: WMT), and Kroger (NYSE: KR). DHB sells sleep aid products through its Dream Water brand, and pain relief products through its LivRelief and LivRelief Infused brands. In Q3, 83% of sales came from the U.S., and the Middle East (Q2-FY2025: 75%), and 17% from Canada. 
• In Q3, higher marketing expenses weighed on EBITDA, EPS, and free cash flows. Marketing costs rose 5 pp YoY to 18% of revenue in 2025 (9M), reflecting management's confidence in near-term growth.
• Earlier this month, the company launched its highly successful Dream Water Sleep Gummies in Middle Eastern markets. We expect FY2026 revenue to be driven by organic growth and new product launches, supported by growing awareness of the importance of sleep for mental and physical health.
• DHB’s valuation remains attractive, trading at just 0.48x revenue, while comparable Personal Care companies trade at 1.23x on average, a 61% discount.

Price Performance (1-year)

Overview

DHB’s product portfolio consists of sleep aid/anxiety relief formulations, and pain relief products. The company is also trying to license its patent-pending proprietary transdermal delivery technology to pharma companies 

Follows an asset-light model by outsourcing manufacturing and packaging to entities in North America. Two Primary Brands: Dream Water (sold in the U.S./Canada/the Middle East), and LivRelief (sold in Canada) 

Available at 30k+ outlets in the U.S., and Canada, including major retailers and pharmacy chains 

Financials (Year-End: June 30th) 

Q3-FY2025 revenue grew 1% YoY, in line with our estimate. Growth continues to be driven by Dream Water product sales in the U.S., and the Middle East

Canadian revenue continues to be impacted by softer sales of cannabis-infused LivRelief topical creams; management is currently developing a renewed marketing strategy to revitalize sales of these products. Gross margins were down 3 pp, driven by a higher proportion of low-margin product sales, missing our estimate by 1 pp

SG&A expenses were up 4% YoY, primarily due to higher head count. In FY2025 (9M), marketing expenses were up 5 pp YoY to 18% of revenue, compared to 10%-20%  for industry peers (Source: S&P Capital IQ)

Lower gross margins, and higher G&A expenses impacted EBITDA, EPS, and free cash flows. Healthy balance sheet

No outstanding options/warrants are in-the-money.

FRC Projections and Valuation 

 Although Q3 revenue was in line with expectations, higher-than-anticipated expenses prompted us to raise our full-year expense forecast, and lower our EPS estimate accordingly. As a result, our DCF valuation decreased from $0.91 to $0.87/share

Comparables Valuation

DHB remains one of the most undervalued stocks on our list within the Personal Care products sector. The average sector forward EV/Revenue is up 3% since our previous report 

DHB is trading at a 61% discount to  comparables. Using the average sector EV/Revenue, we arrived at a comparables valuation of $0.57/share (previously $0.55/share

We are reiterating our BUY rating, while adjusting our fair value estimate from $0.74 to $0.72/share (the average of our DCF and comparables valuations), due to lower near-term EBITDA estimates. 

While higher marketing expenses have pressured near-term profitability, product launches, and an expanding market presence, position the company well for FY2026. The company trades at a  significant valuation discount to peers,  especially since it operates in an industry which benefits from the  growing awareness of the importance of sleep.

Risks

We believe the company is exposed to the following key risks (not exhaustive):

• Operates in a highly regulated industry subject to government intervention
• Competition
• Product recall and liability 
• Like any business involved in consumer product sales, we believe hefty marketing budgets are critical for growth

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