• Overview. Dutch Lady recorded a substantial improvement in 2QFY21’s earnings of RM27.3m (+29% yoy) driven by the growth of liquid milk product portfolio during Ramadhan campaign. On qoq basis, earnings rose 62% in tandem with higher revenue recorded amidst high input cost. Besides that, we saw the company’s balance sheet remained healthy with excessive cash of RM90.7m. No additional bank overdraft secured as at 2Q21 as management indicates the company has sufficient cash to support the seasonal fluctuations of its working capital needs and hence has fully repaid its short-term banking facilities.
• Key highlights. Thanks to the better operating profit condition which saw profit climbing 36% yoy on better demand products coupled with positive mix (channel and portfolio) in festival month. Its EBITDA margin level has now expanded by 3.4ppt to 15.7% from 12.3%, bringing the YTD EBITDA margin to 14.1%.
• Against estimates: Inline. The net profit of RM27.3m is considered inline with our/consensus forecast at 41% and 47% in expectation greater earnings in 2H21 (higher sales to offset high raw mat cost).
• Outlook. We expect earnings to jump in 2H21 supported by 1) flexibility in HORECA operation (people completing two jabs are allowed to dine-in), thus serving in a better demand for its HORECA channel 2) many states shifting towards PPN Phase 2, this would have extensive impact on its Out-of-Home (OOH) demand.
• Our call. Maintain BUY call with DCF-derived TP of RM49.30 based on (WACC of 7.1%).

Source: BIMB Securities Research - 27 Aug 2021