DPI Holdings Bhd’s (“DPI”) fundamentals remain solid with its expansion mode backed by strong balance sheet with net cash position. The aerosol paint specialist is currently trading below its IPO price, offering good value proposition. Recommend BUY with a target price of RM0.22 premised on 12x blended PER FY20 as per regional industry players.

Having an established track record of over three decades, DPI’s own brand manufacturing (“OBM”) business is anchored by “Anchor”, “DPI” and “Kromoto” in-house brands. Contributing more than 50% to its total sales, its OBM segment is widely supported by over 700 distributors in Malaysia. DPI also provides private label manufacturing services to local and international customers such as Japan, Australia, New Zealand and Indonesia, highlighting the superiority of its product quality. The recent MoU signed with JV partners from China will further enhances their export business especially to the Chinese markets.

DPI is expanding its production capacity, boosting annual capacity to 20m cans from the current 9.7m cans over the next 2 years. As more than 80% of the sales are still dominated by local businesses, we believe the expansion provides DPI decent export growth within the emerging markets. Management has also indicated to venture into new regional markets such as Vietnam and Myanmar tapping on the increasing urbanisation and motorisation activities as these countries still have a low penetration of aerosol paint products against country population.

DPI has a clean balance sheet with zero borrowings and net cash position of RM48.8m, providing ample room for its capacity expansion. Moving forward, we expect earnings growth to be driven by higher export sales volume especially on the regional markets driven by higher demand for aerosol paint products.

Source: Rakuten Research - 19 Aug 2019