• Overview. Dutch Lady’s (DLM) 1QFY22 revenue and net profit increased to RM299.9m (15.9% yoy) and RM20.6m (21.9% yoy) respectively. This was mainly due to higher demand for DLM products and price increases which mitigated the higher input costs. However, core net profit dropped by 29% qoq (excluding RM154.7m one-off gain from sales of land and manufacturing facilities at Petaling Jaya in 4QFY21) due to higher dairy raw material prices and increase in brand investments. Hence, the core profit margin dropped to 6.9% (-2.7 ppts qoq).

• Against estimates: Inline. 1QFY22’s net profit of RM20.6m was inline with our and consensus full-year forecast at 21% and 22% respectively.

• Dividend. DLM has declared first single-tier interim DPS of 25 sen for FYE22 (1QFY21: 25sen). We estimate a total DPS of 50 sen for FY22, translating into a dividend yield of 1.5%.

• Outlook. We are positive on its long-term prospect given its substantial investment in the Bandar Enstek new site which is expected to be completed in around 3-4 years. The company plans to invest RM400m (between the years of 2021-2025) to install the latest dairy processing machinery and high automated production lines, warehouse and support facilities. 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 in RTD milk segment.

• Our call. We made no changes to our earnings forecast. Reiterate our BUY call with DCF-derived TP of RM41.30 (WACC of 7.1%). The company’s balance sheet remained healthy with solid net cash of RM190m as at 1QFY22 (FY21: RM118.3m).

Source: BIMB Securities Research - 25 May 2022