• Overview. Sales for 1Q21 of RM258.6m improved +3.0% yoy supported from increase in demand during Chinese New Year festival. Despite the MCO 2.0 environment, the company was able to operate at full capacity and recorded higher sales.
   
• Key highlights. Its EBITDA increased by +3.8% yoy, due to higher depreciation of PJ’s factory which cannot be transferred to its new site, resulting in an accelerated figure to RM8.9m from RM4.1m.
   
• Against estimates: Below. 1Q21 net earnings of RM16.9m is below our estimates, making up 16% of our full year forecast. The key setback was mainly from negative mix (channel and portfolio) and also squeezed by increased prices of global dairy raw materials. Profit margin was reduced by 50 bps from 7.0% to 6.5% during the same period.
   
• Outlook. We think in near-medium term, MCO environment and raising raw skim milk powder which has risen by +9% to-date to continue dictate its demand and possibly dragging input cost. Nonetheless, we believe that the national immunization programme is progressing, as Malaysia will be receiving 3.52m doses of Covid019 vaccine starting in this month, June, July and August. The MOH has procured and confirmed delivery according to schedule, similarly for the third phase. With this, we expect consumer spending will be back on track of recovery, thus we maintain our forecast at this juncture given brighter 2H outlook for the sector.
   
• Dividend. DLM has declared first DPS of 25sen for FY21(FY20: 40sen); translating to DY of 0.7% at the current market price and payable on 22 Jun 2021.
   
• Our call. We maintain BUY call and our DCF-derived TP of RM49.60 based on (WACC of 7.1%).

Source: BIMB Securities Research - 25 May 2021