KEY INVESTMENT HIGHLIGHTS

• 1QFY21 bottom-line of RM12.8m met expectations
• 1QFY21 top-line at RM156.7m, an improvement of +2.7%yoy
• Expansion of production capacity by 60%, well on track
• No dividend declared in 1QFY21
• Maintain BUY with a revised target price of RM2.94

1QFY21 earnings of RM12.8m met expectations. Daiboichi’s earnings came in at RM12.8m, higher by +16.5%yoy compared to RM11.0m achieved in the same period last year. The growth in earnings was on the back of higher sales to major consumer brands. Its bottomline for 1QFY21 were in-line with expectations at 28% of our and 23% of consensus full year estimates.

1QFY21 revenue at RM156.7m, an improvement of +2.7%yoy. This was largely attributed to better sales achieved from domestic market which amounted to RM88.5m (56.5% of group revenue) while exports made up RM68.2m (43.5% of group revenue). On top of that, in line with the higher sales figure, the Group registered +6.7% higher operating profit at RM17.6m in 1QFY21 compared to RM16.5m in 1QFY20. It is also notable that there was an impairment of goodwill recognized amounting to RM4.0m in the current quarter.

Expansion of production capacity by 60%, well on track. As part of its expansion plans, the Group has recently acquired new printing, lamination and bagging machines. It is worthwhile to note that the RM100m expansion initiative that commenced in FY20 is well on track to expand production capacity by 60%. On top of that, the Group has undertaken many developments - jointly with its customers and Scientex Group. One of the developments is packaging solutions in the form of polypropylene (PP) based mono-material laminates which are fully recyclable solutions.

Dividend. The group did not declare any dividend for this quarter. Nonetheless, Daibochi’s shareholders have approved the proposed final dividend of 3.0sen per share in respect of FY20 and is payable on 15 January 2021. Together with an earlier paid interim dividend of 2.0sen per share, the total declared dividend for FY20 amount to 5.0sen per share.

Maintain BUY with a revised target price of RM2.94. We adjusted our TP to RM2.94 (previously RM2.92) as we roll forward our valuation base year to FY22. We derive our TP by maintaining a PER of 19.0x to FY22 EPS of 15.5sen per share. As such, we maintain our BUY recommendation on the stock. The adjusted TP implies expected total return of +12.9%. Moving forward, we see the prospect of Daibochi as exciting to be fueled by (1) capacity expansion initiative which will boost production, (2) increase in coverage of new product categories in the food and beverage (F&B) and fastmoving consumer goods (FMCG) segments, and (3) larger customer base in Southeast Asia and Oceania. Having said that, we remain cautious on the potential downside risk namely rising raw material prices.

Source: MIDF Research - 17 Dec 2020