INVESTMENT HIGHLIGHTS

• 1QFY17 results largely within expectations

• Yoy revenue up 4.9% but profit fell 11.4%

• Qoq revenue improved by 4.2% and profit slipped 2.8%

• Sales from Indonesia to boost export growth

• Maintain NEUTRAL with TP of RM2.54 (ex-TP of RM2.11)

1QFY17 results largely within expectations as earnings make up for 21% of our earnings and 24% of our revenue estimation. We consider the results within expectations as we expect a stronger second half due to positive contribution coming from Myanmar. The company announced that Myanmar Investment Committee approves its joint venture agreement to set up operations with its local partner Myanmar Smart Pack. In interim dividend of 1.32 sen was announced.

Yoy revenue +4.9% but PAT -11.4%. Revenue was higher due to growth from both local (+2% yoy) and overseas (+8% yoy) sales. However, its net profit slid 11.4% due to higher raw material costs. The lower profit this quarter is also attributed to an absence of foreign exchange gain. Going forward, we expect margins to stabilise as USD/MYR exchange rates have been less volatile while operational efficiency has improved as a result of better wastage control and a new batch of foreign workers who started work in the first quarter.

Qoq revenue +4.2% and PAT -2.8%. The higher revenue sequentially was due to orders from a new Indonesian customer. Due to wastage control and better operational efficiency qoq, its PBT improved 2.3% despite for higher raw material prices.

Sales from Indonesia to boost export growth. Daibochi has started production for a new customer from Indonesia in 1QFY17. It is conducting a trial run for another Indonesian MNC customer for the FMCG segment, which is expected to see new orders in the second half. At the same time, Daibochi is also undergoing qualification with another MNC in Indonesia to supply one of its key food and beverage brands. We expect export sales to grow stronger once Daibochi secures orders from its new customers in Indonesia.

Maintain NEUTRAL with TP of RM2.54 (ex-TP of RM2.11). We make no changes to our assumptions and earnings forecast pending an analyst briefing today

Source: MIDF Research - 5 May 2017