Daibochi’s  9M13  earnings  were  in  line  with  our  and  consensus estimates, with  growth  largely  driven  by  higher  sales  at  its  Malaysian packaging operations. Despite expectations of stronger 4Q13 earnings, we feel that most positives have been priced in, given a 43% YTD surge in  its  share  price  and  risk  of  higher  raw  material  costs.  Maintain NEUTRAL and MYR3.53 FV, pegged to an unchanged 12x 2014 EPS

• Results in line.  Despite  a  12.3% y-o-y sales growth,  Daibochi’s 9M13 net profit rose  by  a slower 11.6% y-o-y to MYR20.5m,  largely  due to: i) higher  packaging  raw  material  costs,  and  ii)  lower  property  earnings. While  9M13  earnings  represented  only  70%  of  our  2013  forecast, Daibochi typically enjoys stronger sales in 4Q due to buoyant consumer demand  ahead  of  year-end  festivities.  The  group  announced  a  4  sen DPS, bringing 9M distribution to 11sen vs 9.8 sen for 9M12.
• Stronger packaging sales. Malaysian packaging sales rose 11.9% y-oy  to  MYR191.3m,  in  line  with  its  historical  trend.  This  helped  offset  a 5.8%  y-o-y  decline  in  its  Australian  sales,  weighed  by  adverse  forex movements  in  the  AUD.  Overall,  the  packaging  segment’s  pre-tax margin  remained  flat  y-o-y  as  cost  savings  from  wastage  control  were offset by higher raw material costs. Property sales spiked 3.2x y-o-y due to the sale of  a piece of commercial land  in 3Q for MYR6.2m. That said, property  segmental  pre-tax  earnings  only  amounted  to  <MYR1.0m  for 9M13, further eroding Daibochi’s blended margin.
• Stronger 4Q13 seen. We expect a stronger 4Q13 as: i) new orders from a major MNC F&B client continue to increase, and ii) demand for its new two-layer  (duplex)  film  continues  to  gain  traction  among  clients.  We maintain our forecasts at this juncture, pending today’s briefing.
• Maintain NEUTRAL.  With its share price having surged 43% YTD, we feel  that most  positives  have been  priced  in.  Also,  Daibochi  could see downside risk to  4Q13  earnings  should raw material costs  remain  high (our worries are mainly due to the rise in  crude oil prices in the July-Sept period and its timing effect on 4Q).  With limited  catalysts, we maintain our NEUTRAL call and MYR3.53 FV, pegged to 12x 2014 EPS.

Source: RHB