• 9MFY20 results largely within

• Net profit for the period came in at RM36.5m and revenue at RM463.5m

• 3QFY20 earnings fell 26%qoq as revenue dipped by 4.4%

• Investing RM60m for capacity expansion

• Maintain BUY with a revised TP of RM2.66

9MFY20 results largely within. Daibochi’s net profit for the nine months ended April 30 of RM36.5m was largely within our expectation, making up 81% of ours and 85% of consensus’ estimates. A dividend of 2.0 sen was announced during the quarter.

Net profit for the period came in at RM36.5m and revenue at RM463.5m. There is no comparative preceding period due to the change in financial year end. During the period, local market made up 54.9% or RM254.5m of total sales while exports made up the remaining 45.1%.

3QFY20 earnings fell 26%qoq as revenue dipped by 4.4%. During the quarter, net profit for 3QFY20 was RM10.8m on the back of RM152.0m in revenue. The lower earnings can be attributed to exchange rate loss and loss on disposal of investment in an associate. The company was granted approval by MITI to continue operations during the Movement Control Order (MCO) by adhering to the strict guidelines imposed by the authorities. We think that the more stringent SOPs may have also lightly dampened Daibochi’s operating margin. That said, we are not overly concerned as the company may improve its efficiency over time as it adapts to the new guidelines.

Investing RM60m for capacity expansion. In view of the sustained orders from its customers, the company is allocating RM60m in capex to purchase 13 new lines for its printing, lamination ad bagging processes, which are expected to come on stream over the next six months. We think that the expanded capacity may contribute positively to its FY21F topline and bottomline. However, we are keeping our earnings forecast pending further details.

Maintain BUY with a revised TP of RM2.66 (previously RM2.60). Our TP is adjusted as we roll over our base year to FY21F. It is derived from an unchanged valuation of 19.0x PER FY21F EPS of 14.0 sen. We continue to like Daibochi for the resilience in earnings amid the uncertainties caused by the Covid-19 pandemic. This is premised on the strong demand for flexible packaging, which is used for the food and beverage and fast moving consumer goods industry. On top of that, it has a sizeable number of MNC customers, which anchors the certainty for payment collection.

Source: MIDF Research - 22 Jun 2020