DLADY’s 1HFY23 results met expectations. Its 1HFY23 top line grew 10% YoY driven by the economy reopening and price hikes on selected products. Its 2QFY23 net profit more than doubled QoQ as cost pressures eased. We maintain our forecasts and TP of RM26.99 but upgrade our call to OUTPERFORM from MARKET PERFORM as value has emerged from the recent weakness in its share price.

Its 1HFY23 core net profit met expectations at 47% each of both our full-year forecast and consensus full-year estimate. However, it did not declare an interim dividend as per historically.

YoY, its revenue jumped 10% on stronger sales volumes on the back of the economy reopening and impact from price hikes on selected products. However, its net profit fell 16% as it did not fully passed on higher inventory cost via price hikes, with further impact from the MYR’s weaknesses, and higher depreciation and tax.

QoQ, its revenue eased marginally (-1%) but net profit more than doubled, thanks to lower input cost, a favorable product mix and improved efficiency.

Improved margins ahead. We expect a stronger 2H in terms of sales, especially in 4Q due to seasonality. DLADY is also poised for improved margins given the softening soft commodity prices.

Forecasts. Maintained.

Correspondingly, we maintain our TP at RM26.99 on FY24F PER of 22x which is consistent with the industry’s average forward PER. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We like DLADY for: (i) its resilient top line underpinned by steady demand for staple food items despite an uncertain global economic outlook, (ii) the upside potential of its margins (beyond FY23) given the softening food commodity prices, (iii) its strong brand recognition and increasing awareness of the nutritional value of dairy products. Upgrade to OUTPERFORM from MARKET PERFORM as value has emerged after the recent weakness in its share price.

Risks to our call include: (i) volatile food commodity prices, (ii) further weakening of MYR resulting in higher cost of imported raw materials, and (iii) down trading by consumers.

Source: Kenanga Research - 25 Aug 2023