Highlights

MIDF Sector Research

Author: sectoranalyst   |   Latest post: Thu, 22 Oct 2020, 11:26 AM

 

Daibochi Berhad - Strong And Sturdy In Spite Of Covid-19 Headwinds

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KEY INVESTMENT HIGHLIGHTS

  • FY20 results within expectations
  • FY20 bottom-line came in at RM47.7m with top-line at RM619.3m
  • 4QFY20 bottom-line registered at RM11.2m, showing a marginal increase of +3.6%qoq
  • Additional RM40m allocated for capacity expansion
  • FY20 total dividend amounted to 5.0sen per share
  • Maintain BUY with a revised target price of RM2.92

FY20 results within expectations. Daibochi’s net profit for FY20 came in within our and consensus expectations, accounting for 106% and 97% of full year estimate respectively.

FY20 bottom-line came in at RM47.7m with top-line at RM619.3m. There is no comparative preceding period due to the change in financial year-end. During the period, we gather that the domestic market made up 55.4% or RM343.1m of total revenue whereas exports constituted the remaining 44.6%.

4QFY20 bottom-line registered at RM11.2m, showing a marginal increase of +3.6%qoq. During the quarter, the group recorded 4QFY20 PATAMI at RM11.2m, on the back of RM155.8m (+2.5%qoq) in revenue. This increase was mainly attributable to higher domestic sales which compensated the lower exports during the quarter.

Additional RM40m allocated for capacity expansion. As part of the group’s expansion plans, we gather that Daibochi has allocated an additional RM40m to purchase eight more lines, with four lines already contracted to date. Note that the group had previously announced that they were to allocate RM60m for the purchase of 13 new machines. To date, seven machines have been commissioned during FY20 whereas the remaining six are expected to be commissioned in FY21. With an estimated increase in total capacity of roughly 60% upon commissioning, we postulate that the expanded capacity may contribute positively to the group’s bottom-line over the intermediate-term.

Earnings estimates. Taking into account the resilient demand for flexible plastic packaging (FPP) from the group’s customers amid the Covid-19 uncertainties coupled with the expected increase in production capacity, we are adjusting our earnings estimates upwards for FY21 and FY22 to RM50.3m and RM50.8m respectively.

Dividend. The group had announced a dividend of 3.0sen per share, leading to a total declared dividend of 5.0sen per share for FY20.

Maintain BUY with a revised target price of RM2.92. We are revising our target price upwards to RM2.92 per share (previously RM2.66). We derive our TP by maintaining a PER of 19.0x to the adjusted FY21 EPS of 15.4sen per share. We continue to like Daibochi for its resilient performance largely backed by continuous orders from its customers amid the uncertainties caused by the Covid-19 pandemic. This is premised on the strong demand for flexible plastic packaging, which is used for the food and beverage and fast-moving consumer goods industry. In addition, as we gather that some of the group’s MNC customers have sustainability targets of implementing fully-recyclable packaging across their entire global supply chain by 2025, we would anticipate the group’s continuous innovation to roll out new sustainable solutions (i.e. mono-material laminate solutions) to be able to continue to fulfil the needs and requirements from their MNC customers. This could potentially lead to better financial performance in the long run. All in, we are maintaining our BUY call for Daibochi.

Source: MIDF Research - 18 Sept 2020

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