Period     1Q13

Actual vs. Expectations   The 1Q13 net profit (“NP”) of RM29m was broadly in line, making up 22.7% and 22.9% of the street and our earnings estimates of RM128m and RM126m respectively.

Dividends    No dividend was declared for the quarter. The company commonly pays dividend twice a year and it usually falls in July and Dec.

Key Result Highlights    YoY, the NP improved 5.7% despite a 3.6% decline in the revenue due mainly to the better sales mix and cost management. We believe the slight decline in the revenue could be due the higher requirement for the contest enrolment that the company had in March last year, where the contest required the purchase of two packs of milk powder as compared to only one pack required in this year’s contest. 

On a QoQ basis, the revenue and NP were down by 8.6% and 14.2% respectively. The lower NP was also due to a 3.8ppt decline in the GP margin.  

Outlook    We had turned neutral on the company earlier as FY13 is expected to be a challenging year due to the higher raw material prices (skimmed milk prices have risen +34.8% YoY) and potential higher marketing expenses (as MNCs like DLady tend to spend more on marketing expenses during the slow times). 

Change to Forecasts     We are maintaining our FY13-14E NP estimates of RM126.4-RM136.4m respectively.

Rating    Downgraded to UNDERPERFORM

Valuation    Our TP on DLady is still maintained at RM47.00 after we rolled over to FY14, implying FY14 PER of 22.1x. As our TP is now below the current market price, we are downgrading our MARKET PERFORM call to an UNDERPERFORM. This is mainly due to our assumptions of: 1) a flat earnings growth for FY13E due to the escalating raw material prices and higher marketing expenses and 2) its rich valuation even as the market interest has turned to higher beta stock. 

 Risks    The global economic uncertainty may impact consumers spending, which in turn will hit the company’s earnings.

Source: Kenanga