We met up with DLady's management and came back with our conviction strengthened that the company will continue to optimise returns to its shareholders. Despite all types of headwinds, the company had been able to consistently improve its profits and maintain its high dividend distributions over the years. The momentum and good news should continue as we believe that DLady will continue to maintain its earnings margin this year and gives out a good dividend yield of about 4%. Given the decent potential total return of 11% (conservatively pegged to the 4%-6% milk consumption growth per annum), we reiterate our OUTPERFORM call on DLady with a new TP of RM35.60 (from RM34.20 previously after rolling over our valuation basis to FY13) based on 19.1x PER, which is the 2-SD of its 5-year average PER.

Campaigns that work! The company's well-received campaigns (see next page) have helped raised consumer awareness of the importance of healthy beverages. These types of campaigns were proven in the past to lend a hand in increasing the company's market share. Given that DLady is the domestic market leader for the liquid milk segment with a market share of about 60%, higher consumer awareness will positively benefit the company to achieve its vision of hitting RM1.0b in sales by end of 2013. As for now, we have conservatively pegged our sales forecast to the domestic milk consumption growth of about 4%-6% per annum and hence expect the company to only hit its sales vision above slightly later by 2015. That said, as highlighted, our forecasts are more conservative than management and hence, there could be upgrades in our estimates if the sales outperformed earlier than expected.  

Potential capacity expansion. According to media reports, the company is planning to expand its liquid milk production given its current high utilisation rate after the business grew significantly. Although the company did not disclose the amount of potential investments, the company had said that to increase a production line would likely cost about a million ringgit. We reckon that the company has no issue in funding this expansion as it has RM226m net cash (with no borrowings) as of Mar 2012. 

Attractive dividend yield. DLady has been consistently distributing high dividends. We are expecting at least another an additional 100 sen dividends from the company this year to make up a total DPS of 254 sen for FY12 and 131 sen dividends for FY13, which will translate into a good NDYs of 7.6%-3.9% respectively. 

Maintaining forecast.We are maintaining our earnings growth estimates of 5%-6% for FY12-FY13E, which are conservatively pegged to the market growth rate of 4-6% per annum. That said, the company will likely continue to deliver above-market results in our view, which had been proven

historically with its 5-year net profit CAGR of 20% on the back of market share gains and a better operating efficiency. 

Reiterate OUTPERFORM.We continue to like DLady for its defensive business and its continuous effort in capturing a bigger market share. Although the share price has rallied in the past one year, we believe DLady still has a decent upside going forward given its strong management and track records. Thus, we are maintaining our OUTPERFORM call on DLady with a new TP of RM35.60 (from RM34.20 previously, after rolling over our valuation basis to FY13). Our TP is based on 19.1x PER (19.3x previously).