DLADY’s FY23 results beat our forecast but missed market expectations. Its FY23 gross profit surged 21% YoY thanks to stabilising dairy input cost and enhanced operational efficiency. We raise our FY24F net profit forecast by 3%, lift our TP by 3% to RM26.90 (from RM26.00) and maintain our OUTPERFORM call.

Its FY23 core net profit of RM72m (-8% YoY) beat our forecast by 8% but missed market expectation by 13%. The key variance against our forecast came largely from lower-than-expected dairy input cost. The total dividend per share for FY23 remained steady at 50.0 sen, unchanged from FY22.

YoY, its FY23 revenue advanced 8%, driven by 3% growth in volume, attributable to an increased market share in its dairy products and strategic price adjustments aimed at maintaining a balance between affordability and profitability. However, its gross profit surged by a sharper 21%, thanks to stabilising dairy input cost and enhanced operational efficiency. However, its core net profit fell by 8% due to a higher taxation rate.

QoQ, its 4QFY23 revenue declined by 2% due to unfavourable product and channel mix. However, its core net profit improved 36%, thanks to better margins coupled with lower taxation rate.

Forecasts: We raise our FY24F net profit forecast by 3% to reflect higher margins and introduce our FY25 numbers.

Valuations. Correspondingly, we lift our TP by 3% to RM26.90 (from RM26.00), based on an unchanged average industry forward PER of 22x. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Outlook. Amidst generally weak spending sentiment, we favour consumer staples players (over consumer discretionary players) given the inelasticity of staple food demand. In addition, their target customers in the low-income group will also be shielded from the brunt of subsidy rationalisation and could potentially benefit from the introduction of progressive wage model.

Investment case. We continue to like DLADY for: (i) its resilient top line driven by the steady demand for staple food products, even amid the global economic uncertainties, (ii) its ability to offset rising costs through price adjustments, thanks to strong brand equity, and (iii) its well-established brand and the escalating recognition of the nutritional advantages of its dairy product. Maintain OUTPERFORM.

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 - 21 Feb 2024