Daibochi’s  1HFY13  earnings  were  in  line  with  consensus  and  our estimates.  Improvements  in  waste  control  and  higher  sales  volume  at its packaging segment lifted the group’s overall net profit. We bump up our  FY14  earnings  forecast  by  7.1%  as  we  see  higher  sales  after  it completes its capacity expansion. Maintain NEUTRAL, with a higher FV of MYR3.53 (from MYR3.08). 
 
- As expected. 1H13 sales improved by 2.5% y-o-y to MYR142.8m from MYR139.3m  while  net  profit  expanded  by  13.9%  y-o-y  to  MYR13.1m from  MYR11.5m.  The  higher  topline  was  underpinned  by  a  2%  y-o-y revenue  growth  from  its  packaging  segment  and  a  28%  growth  in revenue  at  its  property  division.  Improvements  in  waste  control  and higher sales  volume  from  its packaging  unit  lifted the group’s net profit, while  PBT  rose  10%  y-o-y  due  to  better  profitability  across  the  board. The packaging segment’s PBT rose by 10% y-o-y, largely supported by stronger  revenue  and  better  waste  control.  Meanwhile,  the  group’s property segment recorded a marginal PBT increase of 6%. Vis-à-vis last quarter, the 2Q13 turnover and earnings were down 5.3% and 15.5% y-o-y  respectively  due  to  unfavorable  exchange  rates,  particularly  in Australian  dollars,  the  increase  in  prices  of  certain  raw  materials  and lower sales during the quarter.

- Margins.  The group’s PBT margin improved to 12.3% from 11.5% in 1H12, supported by a stronger 12.1% margin from its packaging division (1H12: 11.3%). The company declared an interim tax-exempt dividend of 3 sen per share, bringing 1H13 DPS to 7 sen. 

- Risks. The key investment risks are: i) a sharp increase in raw material prices; ii) losing contracts from key customers (eg Nestle); and  iii) plant accidents/shutdowns.  

- Maintain NEUTRAL. We expect a stronger FY14 topline as the group’s new facility, slated for completion by 4QFY13, will enable it to expand its production capacity by 22% to 135m meters/month. As we bump up our FY14  earnings  estimates  by  7.1%  and  roll  over  our  valuation  to  12x FY14  EPS  (from  FY13  EPS),  our  FV  moves  up  to  MYR3.53  (from MYR3.08).  Maintain  NEUTRAL  since  the  stock  is  trading  at  a  forward P/E of ~14x, which is on par with its packaging industry peers. 

Source: RHB