INVESTMENT HIGHLIGHTS

• 5QFY19 results below expectation

• Earnings estimates cut by 11% for the full year of CY19

• Change in dividend policy to 30% payout

• Maintain SELL with adjusted TP of RM1.55

5QFY19 results below expectation. Daibochi’s results for the three months ended March CY2019 (5QFY19) was lower than expectations, making up only 7% of ours and 5% of consensus’ full year estimates. The negative deviation can be attributed to higherthan-expected operating costs. Notably, EBIT margin was 3% compared to 9% in the previous corresponding period.

Net profit fell 76%yoy to RM1.6m, which is a sharp decline from RM6.5m a year ago. This is despite a 5.8% increase in revenue to RM110.8m. Compared to previous quarter, the sequential turnaround is mainly due to one-off merger and acquisition expenses recorded previously.

Earnings estimates cut by -11% for the full year of CY19. Due to the weaker-than-expected set of earnings, we have reduced our estimate for CY19 to RM20.5m from RM23.0m previously.

Change in dividend policy to 30% payout. Daibochi has also announced that it will be changing its dividend policy from at least 60% payout set in FYE Dec 2017 to annual dividend of not less than 30% currently. This does not come as a surprise as Daibochi is embarking on expansion plans and will need to conserve some of the cash for possible M&As in the future. It has announced to acquire one of its local peers, Mega Printing & Packaging Sdn Bhd, for RM125m cash earlier this month. However, the shift in its dividend policy may be a negative change for yield-seeking investors.

Maintain SELL with adjusted TP of RM1.55. Following the reduction in our earnings and dividend estimates, we have reduced our DDM-derived TP to RM1.55 from RM1.60 previously. Our SELL recommendation is maintained due to the recent run-up in share price and low operating profitability. Moreover, dividend yield is unattractive at 1.5%.

Source: MIDF Research - 15 May 2019