FY2025 Beat: Geographic Expansion and Potential M&A in the Works

• DHB’s share price is up 93% YTD, outperforming the S&P Personal Care Index, which fell 7%.
• FY2025 (ended June 30, 2025) revenue grew 8% YoY, beating our estimate by 3%, driven by stronger-than-expected Dream Water sales in the U.S. and Middle East.
• Marketing costs rose 26% YoY to 15% of revenue, reflecting management’s earlier guidance to increase marketing spend to drive growth. Adjusted EPS fell 12% to ($0.02), beating our estimate of ($0.04) due to higher revenue and lower costs.

• DHB sells sleep aid products under the Dream Water brand, and pain relief products under LivRelief and LivRelief Infused brands. Approximately 80% of FY2025 sales came from the U.S. and Middle East (up from 74% in FY2024), with the remaining 20% from Canada. Products are available at over 30k+ distribution points, including retail and pharmacy chains, convenience stores, and airports. DHB is actively expanding distribution in the Middle East, and Latin America to support long-term growth.
• We note that market sentiment for the Personal Care sector is down slightly, with a 3% drop in average sector forward EV/revenue since May 2025. However, the sector is expected to accelerate, with consensus revenue growth rising to 11% in 2025, from 9% in 2024.
• DHB maintains a healthy balance sheet, and is well funded to support its expansion plans. We anticipate robust organic growth, supported by growing awareness of the importance of sleep for mental and physical health, alongside additional expansion through new geographic markets.
• The company is also planning M&A to expand its product portfolio — a strategy we view positively. With robust distribution channels, we believe DHB can quickly increase shelf space for acquired products, boost revenue, and deliver accretive value.
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Price and Volume (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)

FY2025 revenue rose 8% YoY, beating our estimate by 3%, due to stronger than expected Dream Water sales in the U.S., and Middle East. Canadian revenue remains pressured by softer sales of cannabis-infused LivRelief topical creams, with management developing a refreshed marketing strategy to boost performance

Gross margins fell 4 pp, driven by a higher share of low-margin products, missing our estimate by 1 pp. SG&A expenses fell 3% YoY, 4% below our estimate.

Marketing expenses were up 2 pp YoY to 15% of revenue, compared to 10%-20% for industry peers (Source: S&P Capital IQ)

Higher marketing expenses weighed on EBITDA, EPS, and free cash flow Adjusted EPS fell 12% to ($0.02) but comfortably beat our estimate of ($0.04), driven primarily by higher revenue and lower costs

No outstanding options/warrants are in-the-money. With FY2025 revenue beating expectations, we are raising our FY2026 estimates

As a result, our DCF valuation increased from $0.87 to $0.92/share

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

DHB is trading at a 57% discount to comparables Using the average sector EV/Revenue, we arrived at a comparables valuation of $0.62/share (previously $0.57/share), driven by our higher revenue forecast

We are reiterating our BUY rating, while adjusting our fair value estimate from $0.72 to $0.77/share (the average of our DCF and comparables valuations). We believe DHB’s robust revenue growth and strategic initiatives position the company for sustained long-term expansion. Continued market penetration, geographic growth, and targeted M&A are expected to enhance product reach and profitability. Valuation metrics suggest DHB remains modestly priced relative to peers.

Risks

We are maintaining our risk rating of 3 (Average)v

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