DLADY remained robust despite the ongoing challenges with margins staying stable, thanks to prudent management. We retained our TP of RM40.20 and reiterate our OUTPERFORM call.

Above expectations. 9MFY21 PATAMI of RM65m came above our expectation, at 81%/69% of our/consensus full-year estimates. A second interim DPS of 25.0 sen was declared for the quarter which brought YTD DPS to 50.0 sen (implying a payout ratio of <50% - in line with our forecast).

YoY, top-line grew 3% to RM833m with sales remaining robust throughout the year. Despite the stricter COVID-19 control measures, the company was able to operate at full capacity, driven by the consistent penetration of milk consumption and affordability as essential nourishment. GP margin saw a 3ppt uptick indicating better product mix and hedging activities. While EBITDA margin saw a 3ppt uptick in tandem with top-line, EBIT was slightly slower (+2ppt) dragged by accelerated depreciation costs of its assets in Petaling Jaya. PATAMI ended at RM64m (+22%) as ETR remained relatively stable at 25%.

QoQ, top-line moderated at +2% to RM291m given the lack of festivities in the quarter under review. While growth momentum moderated, performance constantly hovered above pre-pandemic levels. Margins saw erosion, c. 2ppt, on still elevated prices of global dairy materials and higher brand of investments. PATAMI ended 25% lower to RM20m on account of the elevated costs and higher ETR of 29% - due to the absence of deferred tax expenses.

An essential nutritional item. Moving forward, the group should be able to preserve its sales base on the back of fresh product innovations and strategic pricing strategies, in tandem with the gradual reopening of the economy. DLADY has good leverage from the strength of its brands, increasing need and recognition of the nutritional value of milk, as well as complementing dairy products consumption amongst Malaysians. The company remains supportive of the local dairy farmers and is increasing the quantity and quality of local fresh milk. Demand for milk is sustainable as a trusted and an essential component of dietary nutrition. However, margins still remain challenging in the immediate term as global dairy prices are expected only to taper off by end of CY22.

Post results, we make no changes to our FY21E/FY22E earnings.

Reiterate OUTPERFORM. TP remained at RM40.20, pegged to an unchanged FY22E PER of 32x (implying 0.5SD above mean). The slight premium is to reflect its robustness and margins preservation due to its better product mix and sticky products demand as an important dietary nutrition. OUTPERFORM maintained.

Risks to our call include: (i) weaker-than-expected sales, (ii) worse than-expected cost environment

Source: Kenanga Research - 26 Nov 2021