• 1HFY17 results largely within expectations

• 2QFY17 revenue and earnings decreased -10.5%yoy and - 17.1%yoy respectively

• Revenue and earnings declined -7.7%qoq and PAT - 12.5%qoq respectively

• Operations from Myanmar to contribute by 3QFY17

• Maintain BUY with TP of RM2.51 per share

1HFY17 results largely within expectations as 6MFY17 earnings make up for 38.3% of our full year earnings forecast while revenue consists of 45% of our full year revenue estimation. We expect a stronger second half due to positive contribution coming from Myanmar as well as two MNC customers from Indonesia, which is expected to start contributing in 4QFY17. Note that Daibochi Packaging (Myanmar) Co Ltd (DPM) has started operations since July 1 2017.

2QFY17 yoy revenue -10.5% and PAT -17.1%. Revenue was lower at RM86.8m during the quarter compared to last year mainly due to an operational hiccup at a Philippines’ customer, which led to softer export sales. Due to the lower utilisation rate, opex margin increased, which led to the 17% drop in net profit yoy to RM5.0m. We understand that this customer has resolved its problems and should have a normalised contribution going forward. The company has declared a dividend of 1.0sen, bringing the full year dividend to 2.32sen.

Qoq revenue -7.7% and PAT -12.5%. The same reason mentioned above has led to a sequentially weaker quarter qoq. We believe that 3QFY17 will be better than 2QFY17 due to contribution from Myanmar as well as resumption of contribution from the Philippines’ customer.

The Myanmar story is still intact. Daibochi has started operations at DPM. Since then, it has been aggressively pursuing new contracts from food and beverage and fast moving consumer goods in Myanmar. DPM expects to start exporting to Daibochi’s price-sensitive customers in Malaysia in 3Q. On top of that, it is also looking at new beverage labelling business. These will contribute to the positive growth of DPM in FY17, which will also lead to stronger performance for Daibochi in the second half. Management targets 20% revenue contribution from DPM by end 2018.

Impact on earnings. No changes to our earnings forecasts pending analyst briefing.

Maintain BUY with TP of RM2.51. We are maintaining our BUY recommendation on Daibochi at this juncture with a post-bonus target price of RM2.51 per share. Our target price is based on the dividend discount model with a terminal growth rate of 3.2%.

Source: MIDF Research - 10 Aug 2017