• Overview. Daibochi registered a better quarterly net profit of RM12.8m (+17% yoy) for 1QFY21 mainly due to higher domestic sales and better profit margin. This was also aided by lower finance costs of RM0.3m (>-100% yoy) derived from lower debt. On qoq basis, net profit improved 14% owing to better cost management. Overall, profit margin improved to 8.2% (+1.0 ppts qoq & yoy).
• Key highlights. Seven new lines which were commissioned during FY2020 continued to provide economies of scale for Daibochi in ensuring better profit margin. Domestic market contributed 56.5% out of total revenue or RM88.5m while export portion was 43.5% or RM68.2m.
• Against estimates: Inline. The 3MFY21 net profit of RM12.8m (+17% yoy) made up 23% of consensus full year forecast.
• Outlook. We believe demand for flexible plastic packaging (FPP) will grow steadily mainly due to lack of sustainable substitutes, while the introduction of Daibochi’s fully-recyclable FPP is expected to improve the market acceptance for its products. The group expects the demand for eco-friendly packaging to grow in tandem with the diversification of product applications in foods & beverages (F&B) industry. Daibochi shows a keen expansion of their export division within Southeast Asia and Oceania regions to seize larger market share. Daibochi has a strong balance sheet with a gearing position of 0.1x and cash equivalent of RM34.7m.

Source: BIMB Securities Research - 17 Dec 2020