Dutch Lady’s 1HFY18 net profit grew 1.2% to RM64.9m which is on track to meet our full year forecast, at 46%. Revenue rose marginally to RM520.4m or +1.3% yoy. As a result EBIT margin gained 0.4 ppts to 16.9%.
On qoq basis, revenue fell by 4.5% to RM254.2m caused by shorter selling days given the festival season and Ramadhan, according to the company. Despite the zero-rated GST, we believe consumer spending trend during the period was more focused on discretionary items. Consequently, net profit declined by 10.3% to RM30.7m mainly due to an unfavourable exchange rate thus resulting in NP margin decreasing to 12.1% (-0.8 ppts).
Revenue in 2Q18 reduced by 3.5% from RM263.5m yoy whilst profit fell 4.7%. Pre-tax profit margin as a result, dropped to 15.9% from 16.2% a year ago. Despite the zero-rated GST period in June, Dutch Lady’s results did not indicate the company benefited much from the tax holiday period in the current quarter performance. On a positive note, the company’s balance sheet remained healthy, i.e. net cash position.
While the outlook is still challenging due to the stiff market competition and weak ringgit (as raw materials are imported is USD), we believe the company’s strong brand name and its continued efforts to defend market share ensures its brand equity remains solid. Overall, we expect margin for FY18 to improve to 12.5% from 11.1% in FY17.
No adjustment is made to our earnings. We retain our Hold recommendation with DCF-derived TP of RM65.00 (WACC: 7.6%).
Source: BIMB Securities Research - 29 Aug 2018
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