Daibochi’s 9M15 core earnings fell short of our expectations, making up only 63%/65% of our/consensus full-year forecasts. Maintain SELL with an unchanged TP of MYR3.80 (28% downside). YTD revenue and earnings remained flat, while declining local sales remain a concern amid weak local consumer sentiment. A third interim dividend of 3.5sen was declared (3Q14: 2.5 sen).

Below expectations. Daibochi’s 9M15 core earnings of MYR18.2m (+1.8% YoY) came in below our/consensus estimates at 63%/65% of full-year estimates, on the back of flattish revenue (+0.5% YoY). 3Q revenue rose 3.5% YoY due to an increase in exports sales volume and higher ASP from a stronger USD translation, but was offset somewhat by weaker sales in the domestic market from local multinational corporation (MNC) and non-MNC customers.

Slight compression in EBIT margin. While 3Q15 EBIT margin expanded 9.9% YoY – mainly driven by a favourable product mix and improved margin from a weaker MYR vis-à-vis a year earlier – it declined 7.9% QoQ. W e think this could be due to a combination of lower operating leverage from lower sales volume and higher raw material costduring the quarter. We gather that prices for polyethylene, polypropylene and polyester films were 1-5% higher QoQ, while Daibochi’s limited pricing power against its local non-MNC customers constrained its ability to pass on the higher costs.

Outlook and forecasts. We trim our FY15-17 earnings forecasts by 6.9%/8.9%/10.6% respectively to take into account softer domestic sales. Risks to our earnings include: i) a sharp increase in raw material costs, and ii) plant accident/shutdown.

Maintain SELL with an unchanged TP. We maintain our SELL recommendation as we are unable to justify ts high P/E valuations. Our TP remains unchanged at MYR3.80, based on a target 15x FY16F P/E (from 14x), close to its 3-year forward P/E of 16.4x. Daibochi’s local peer, Tomypak (TOMY MK, NR) and regional peer, Amcor Ltd (AMC AU, NR) are currently trading at 16.2x and 16.4x respectively, compared withDaibochi’s 20.9x forward P/E.