• Maintain HOLD (TP: RM34.00). Dutch Lady’s (DLM) 1HFY24 core net profit of RM73mn in line with our and consensus, accounting at 55% of each. The impressive 75.2% YoY growth in core net profit was driven by higher product prices and lower dairy raw material costs. DLM’s 2QFY24 revenue dipped slightly by 0.5%, attributed to lower seasonal sales following the strong festive season in the previous quarter. However, core net profit improved by 1.3% QoQ due to lower operating costs. There are no changes in our forecast. We remain optimistic about DLM's outlook, supported by stable demand and long-term growth potential from its new Bandar Enstek factory, which is expected to be operational by the end of 2024. Maintain our HOLD call with unchanged TP of RM34.00, based on a WACC of 7.5% and a TG of 2%.

• Key Highlights. DLM’s 2QFY24 revenue grew by 2.8% YoY to RM360.9mn, largely driven by higher volume, price hikes carried over, and better pricing strategy for selected product ranges and an improved product mix. Core net profit soared by 31% YoY to RM36.7mn, benefiting from increased in revenue and 2.2 ppts YoY improvement in profit margin to 10.2%, mainly due to the decline in dairy commodity prices. On QoQ basis, revenue dropped marginally by -0.5%, reflecting lower sales volumes caused by seasonal factors. Nonetheless, core profit increased slightly by +1.3%, supported by better cost efficiency.

• Earning Revision. No changes in our forecast.

• Outlook. We are positive on DLM’s outlook due to its stable earnings growth, driven by consistent demand, stabilising dairy raw material costs, and improving operational efficiency. DLM has also demonstrated its ability to manage rising costs through strategic price adjustments, underpinned by its strong brand presence in the market. Long-term earnings growth is expected to benefit from the new factory in Bandar Enstek, Negeri Sembilan, which will enhance production capacity.

Source: BIMB Securities Research - 22 Aug 2024