Dutch Lady’s 1HFY23 results met expectations, the dairy company’s top line grew 10% YoY driven by the economy reopening and price hikes on selected products. Its 2QFY23 net profit more than doubled QoQ as cost pressures eased.
The group’s core net profit met expectations at 47% each of both full-year forecasts and consensus full-year estimates. However, it did not declare an interim dividend as historically. YoY, its revenue jumped 10% on stronger sales volumes on the back of the economy reopening and the impact of price hikes on selected products. However, its net profit fell 16% as it did not fully pass on higher inventory costs via price hikes, with further impact from the MYR’s weaknesses, and higher depreciation and tax.
QoQ, its revenue eased marginally but net profit more than doubled, thanks to lower input cost, a favorable product mix, and improved efficiency. Improved margins ahead. We expect a stronger 2H in terms of sales, especially in 4Q due to seasonality. DLADY is also poised for improved margins given the softening of commodity prices.
Correspondingly, Kenanga has maintained its target price at RM26.99 on FY24F PER of 22x which is consistent with the industry’s average forward PER.
The house likes DLADY for its resilient top-line underpinned by steady demand for staple food items despite an uncertain global economic outlook, the upside potential of its margins (beyond FY23) given the softening food commodity prices, its strong brand recognition and increasing awareness of the nutritional value of dairy products. Kenanga has upgraded the stock to OUTPERFORM from MARKET PERFORM as value has emerged after the recent weakness in its share price.
Risks include: (i) volatile food commodity prices, (ii) further weakening of MYR resulting in higher cost of imported raw materials, and (iii) down trading by consumers.
