• Maintain BUY (TP: RM27.00). Dutch Lady’s (DLM) 9MFY23 core net profit of RM76.8mn (-2.5% YoY) exceeded both our and consensus expectations, accounting for 102% respectively. The deviation from our expectations was mainly due to lower-than-expected operating costs. In 3QFY23, DLM’s core net profit of surged to RM35.1mn (+25.1% QoQ, +24.4% YoY), driven by a favourable product mix margin, selected price increases, softening in dairy raw materials prices, and effective cost containment. We are positive on DLM’s outlook, underpinned by sustained demand for dairy products and lower raw material prices. We raised our FY23f/FY24f earnings by 31%/30% as we adjusted our cost assumptions lower and higher margin. Maintain a BUY call with a higher TP of RM27.00 (from RM25.00), based on DDM valuation with a WACC of 7.5% and lower TG of 1.5%. DLM has declared a 2nd interim DPS of 25sen, bringing total FY23 DPS to 50sen and translating into a dividend yield of 2.2%.

• Key highlights. DLM’s 3QFY23, revenue increased to RM372.8mn (+6.1% QoQ, +10.4% YoY), primarily driven by strong demand for dairy products, successful festive campaigns, and selective product price increases. In tandem, core net profit jumped higher to RM35.1mn (+25.1% QoQ, +24.4% YoY) supported by favourable product mix margin, softening in dairy raw materials prices, and effective cost containment. The core net profit margin increased to 9.4% (+1.4 ppts QoQ, 1.1 ppts YoY).

• Earnings Revision. We increased our FY23f/FY24f earnings by 31%/30% by adjusting our cost assumptions lower and anticipated higher margin.

• Outlook. We are positive on DLM’s prospect as demand for dairy products expected to remain resilient despite uncertainty in global economic outlook. Margin to remain stable given that main commodity prices i.e., skim milk prices projected to remain at lower level and together with cost control initiative. The skim milk prices have been trending downwards since reaching its peak in mid-2022 (or dropped c.30% YoY).

Source: BIMB Securities Research - 23 Nov 2023