Dutch Lady’s 9M17 registered lower earnings of RM96.7m (-13%) despite a 2.5% revenue growth. The decline was mainly due to higher material prices and weak ringgit. Average 9M17 milk powder price has increased c.7% yoy. As a result, GP margin fell 4.8 ppts to 38%.
As for qoq, despite higher input costs, 3Q17 posted a slight improvement in earnings by 1.1% due to higher revenue of 6.9%. We believe the increased in revenue was attributed to strong consumer and trade promotion activities. Additionally, 3-5% price increases in selected products also helped the top line growth.
Dutch Lady had declared a standard single-tier interim dividend of 50 sen and special single-tier interim dividend of 60 sen to come to a total FYE17 DPS declared of 280sen (vs FYE16: 220sen). This translates to a dividend yield of 4.7%.
As reported by Global Dairy Trade, the trend in current milk powder prices have been trading at a lower level of USD1,701/MT as at 21st November (Nov 3-mth average at USD1,972/MT vs Aug 3-mth USD2,057/MT). However, this could be offset by other cost increments such as packaging, higher A&P costs and product innovation amidst stiff competition.
We still believe the company’s strong brand name and continued efforts to defend market share ensures its strong brand equity. Upgrade to Hold with higher DCF-derived TP of RM60.00 from RM53.00 (WACC: 8%) after rolling valuations over to FY18.
Source: BIMB Securities Research - 29 Nov 2017
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