Period  4Q13/FY13

Actual vs. Expectations Our FY13 earnings forecast is spot on with the net earnings coming at RM138.3m, which accounted for 100.2% and 100.0% of our estimate and consensus forecast, respectively.

Dividends  As expected, no dividend was declared for the quarter. Total dividend declared for FY13 amounts to 260 sen per share, which gives a dividend yield of 5.4%.

Key Results Highlights QoQ, revenue is marginally lower (-0.3%) while net profit suffered a drop of 23.3% due to higher cost of sales in the quarter.

 YoY, 4Q13 revenue rose by 16.5% mainly driven by strong sales in powder product, which is also partly contributed by the re-launch of its Friso range, which is fully imported from Netherlands. FY13 revenue, on the other hand, rose 11.4% YoY underpinned by robust sales. NP for 4Q13, however, is 4.2% lower due to higher cost of sales and operating expenses. On a full year basis, Dutch Lady Milk (DLADY)’s core earnings managed to grow 12.1% on higher revenue and more favorable product mix.

 Better margins. FY13 PBT margin improved marginally by 0.1ppt YoY due to healthy revenue growth and efficient cost management despite material cost pressures.

Outlook  Outlook remains cautious as we believe that: (i) high raw material prices will likely affect the margin as skimmed milk prices stay on the high-side of 4,674 Euro/kg (YoY +45.5%) and (ii) the anticipation of US quantitative easing may result in the weakening of MYR/USD which would claw into their earnings as its raw materials cost are quoted in USD.

 However, we postulate that the company would be able to mitigate these impacts in view of its strong branding, market position and the recent price adjustment of its products.

Change to Forecasts We have fine-tuned our FY14-15E net profit estimates by +1.3% and +1.8% to RM145.8-RM152.5m, respectively (from RM143.9m-RM149.8m).

Rating Maintain MARKET PERFORM

Valuation  We have also revised our TP on DLADY upwards to RM50.36 (from RM49.70 previously) based on an unchanged PER of 22.1x over the revised FY14 EPS of 227.8 sen.

Risks  Global climate uncertainty may hit the group’s earnings.

Source: Kenanga