INVESTMENT HIGHLIGHTS

• 1QFY18 earnings broadly in-line

• PAT for the quarter increased by 22.8% yoy to RM7.1m

• Qoq, PAT fell by 16.8% due to higher raw material prices

• Daibochi Myanmar continues growing its topline by 27% to RM10.7m qoq

• BUY with unchanged TP of RM2.59

1QFY18 earnings broadly in-line. Daibochi’s earnings came in broadly within expectation, making up 18% of ours and 20% of consensus’ full year estimates. We expect sales to catch up in the coming quarters as Daibochi continues to grow its export markets. It has announced an interim dividend of 1.05 sen, which is largely within our full year expectation of 6.1 sen.

PAT for the quarter increased by 22.8% yoy to RM7.1m as sales grew 11.3% to RM104.7m from RM94.1m a year earlier mainly due to contribution from Myanmar as well as new contracts for the Malaysian arm. Exports improved marginally to 55% of its topline.

Qoq, PAT fell by 16.8% due to higher raw material prices. Although revenue dipped by 1% to RM104.7m, net profit for the period fell 16.8% from RM8.5m to RM7.1m due to the rise in raw material costs. We expect Daibochi to pass on some of the rising raw material costs to its customers in the time to come but price revisions for some of these contracts and jobs take time.

Daibochi Myanmar continues growing its topline by 27% to RM10.7m qoq as the group enlarge its customer base. However, PBT for the unit declined to RM1.5m from RM1.7m as a result of higher raw material prices and the strengthening of ringgit against Myanmar Kyat.

Growth to be supported by Myanmar and Malaysia plants. Daibochi has started to export flexible packaging to an MNC in the ANZ region in April. This is expected to contribute to 2QFY18 earnings. At the meantime, it has also received the new flexographic printer in March, which is expected to increase productivity and achieve better quality.

BUY with unchanged TP of RM2.59. We maintain our BUY recommendation as we make no changes to our earnings estimates for now pending an analyst briefing later today. Our valuation method, based on the dividend discount model with a terminal growth rate of 3.2%, is unchanged. We like Daibochi as a proxy to the consumer industry while most of its customers are reputable multinational companies.

Source: MIDF Research - 15 May 2018