• Overview. Sales for 2Q20 of RM273.5m improved 8.9% qoq supported by increase in demand during Ramadhan period and Aidifiltri festival. Dutch Lady recorded revenue growth of 3.2% in 1H20 to RM524.7m. Regardless of the MCO environment, the company was still able to operate at full capacity.
   
• Key highlights. Its PBT increased 11.4% yoy growing at similar trend as in the past due to higher demand for various products, lower and efficient commercial spend, which partially offset higher global raw material prices. Nonetheless, on qoq basis, the key setback was mainly from negative mix (channel and portfolio), squeezed by weak food service and MCO implementations.

• Against estimates: Below. 2Q20 net earnings of RM21.2m is below our expectation, making up 39% of our full year forecast. We had cut our earnings FY20-22F forecast by 30%-31% against previous forecast as we adjusted our sales lower and higher raw material cost. However, profit margin improved by 70 bps from 7.1% to 7.8% during the same period.

• Outlook. Going forward, we expect consumers to gradually adapt to a ’new normal’ shopping practise. Long term demand post-Covid-19 for consumer goods is anticipated to be stable, in our view, especially for basic non-discretionary products. Stringent exercise, ie limited headcount implemented in hyper markets, coupled with social distancing would not have major effect on consumer behaviour and risk products demand.

• Dividend. The company did not declare any dividend for 2Q20. As to date, a total of 40 sen DPS totalling RM25.6m has been declared and paid on 24th July 2020.

• Our call. We resume and maintain HOLD call with a new DCF-derived TP of RM39.70 (from RM65) based on (WACC of 7.0%). This implies FY20F/FY21F PE of 22x/20x.

Source: BIMB Securities Research - 25 Aug 2020