• Overview. Dutch Lady posted a substantial improvement in 4QFY21’s earnings of RM183.5m (+800% qoq, +810% yoy) mainly due to higher profit (+574% qoq, +613% yoy) realised from completion sales of land and manufacturing facilities in PJ amounted RM154.7m. Its EBITDA margin level has now expanded by 55.1ppt to 68.9% from 13.7%, bringing the YTD EBITDA margin to 28.5% (FY20: 10.9%) aided by positive mix performance (channel and portfolio) as well as effective commercial spend and strict cost management.

• Key highlights. The company’s balance sheet remained healthy with cash of RM118.3m (FY20: RM38.9m). No additional bank overdraft secured as at 4Q21 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

• Against estimates: Above. The net profit of RM248m is above our/consensus forecast at 287% and 264%.

• Outlook. We are positive on its long-term prospect given its hefty investment on the Bandar Enstek new site which expected to be completed around 3 years - 2025. The company plans to invest RM400m to install the latest dairy processing machinery and high automated production lines, warehouse and support facilities during the period. Moving forward, we think DLM could strategically expand its products line into plant-based dairy products (soy, almond & oat milk), and able to retain its market share of 37% in RTD milk segment.

• Our call. We are rolling forward our valuation base year and maintain BUY with newly DCF-derived TP of RM41.30 (previously RM40.60) based on WACC of 7.1%.

Source: BIMB Securities Research - 24 Feb 2022