Overview. Dutch Lady’s recorded a top-line of RM290.5m (+2.3% qoq, +1.3% yoy) in 3Q21 mainly driven by remarkable retail performance despite a total lockdown in the month of July-mid August and partially offset by lower demand in Foodservice and onthe-go channels. Thanks to the introduction of new product and improving demand which saw PBT and net earnings improved 136.8%/120.5% yoy respectively to RM28.9m and RM20.4m. Nonetheless, EBITDA margin declined to 4.0% (2Q21: 15.7%; 3Q20: 5.7%), on rising raw dairy material costs.

Key highlights. Dutch Lady’s balance sheet remained healthy with excessive cash of RM100.7m.

Against estimates: Below. Overall, 9MFY21’s net profit of RM64.5m came in below our/consensus estimates at 60% and 68% of our/consensus full year estimates. Following the result, we adjusts lower our FY21F/FY22F/FY23F earnings forecast by 20%/18%/20% respectively to RM86.5m/RM96.8m/RM105.2m on account of the increase in distribution & marketing costs and administrative expenses.

Outlook. Even though Malaysia’s GDP contracted by 4.5% in 3Q21, MIER’s Consumer Sentiment index has shown significant increased to 101.7 pts in 3Q21 from 64.3 pts in 2Q21. Following the optimism of MIER data, we remain optimistic on DLM near-term prospect given Malaysia is entering endemic phase that may revive consumer confidence and spending while at the same time assisting the normalisation of HORECA operations.

Our call. Maintain BUY call with new DCF-derived TP of RM40.60 versus RM49.30 previously, based on (WACC of 7.0%).

Source: BIMB Securities Research - 26 Nov 2021