• 2HFY17 is expected to be better than 1HFY17

• Daibochi Myanmar is a force to be reckoned with

• Investing in new machines to stay up-to-date

• Maintain BUY with TP of RM2.51 per share

2HFY17 is expected to be better than 1HFY17. We come back from Daibochi’s analyst briefing feeling reaffirmed that its prospects for 2HFY17 are intact. The stronger second half estimation is attributed to contribution from new contracts from two Indonesian customers and Daibochi Packaging (Myanmar) Co Ltd (DPM), which has started operations since July 1 2017. On top of that, the company is negotiating for another FMCG client, which could bring about potential sales of RM20m per year starting next year.

Daibochi Myanmar is a force to be reckoned with. Among others, DPM has delivered its first exports of consumer packaging since beginning of August 2017. DPM is also looking at producing a new beverage labelling. We estimate that DPM could contribute 8% to 12% to Daibochi’s PBT this year. We expect contribution from DPM to at least double next year due to the full year impact as well as potentially higher sales due to the export strategies carried out. DPM is applying for certification of standards so that it can explore opportunities with MNC customers, which usually require a more stringent set of practices.

Investing in new machines to stay up-to-date. Daibochi is allocating RM9.8m in the second half for new machines. The capex budgeted is for one unit of flexographic printer, two units of high speed slitting machines and one unit of seaming and inspection machine. This investment is in-line with one of its key food and beverage MNC customers’ plans to standardise its worldwide supply. The flexographic printer is expected to reduce wastage and improve efficiency due to the fixed number of colours used in the printing process. As the user does not need to change the ink components and clean the printer before starting a new batch, this machine is also suitable for short runs and will reduce downtime. We believe this is long-term positive for Daibochi as it continues to keep up with new printing technology while open doors for customers who prefer this printing method.

Maintain BUY with TP of RM2.51. We make no changes to our assumptions and earnings as Daibochi’s prospects are still intact. We maintain our BUY recommendation with a TP of RM2.51, which is based on the dividend discount model with a terminal growth rate of 3.2%.

Source: MIDF Research - 11 Aug 2017