Company Update
09 September 2014
Dutch Lady Milk Industries
UNDERPERFORM ↔
Price: RM46.28
Target Price: RM44.22
Near-term Price Hike Remedy
↑
By Soong Wei Siang l soongws@kenanga.com.my
Milks get dearer. The Group has increased its selling price over the range of
its products in June 2014; the second round of price hike in 2014 since
January. We reckon that the price increase is necessary to factor in the higher
raw material prices, but the quantum of the price increase was undisclosed.
Meanwhile, the Group has also downsized its ready-to-drink (RTD) UHT milk
to 200ml/pack from 250ml/pack previously in a strategy to mitigate the impact
of the price increase on the consumer.
Muted impact envisaged. DLADY expects minimal impact from the price
increase to the child nutrition segment, particularly the premium brands and
early life stage range of products (0-12months) due to the low price elasticity
as compared to other products. For the beverages segment, the Group
expects demand to be sustained by the rising health awareness as the
average consumption of Malaysian is low at 2 servings/week vs 2
servings/day recommended by World Health Organization (WHO), which
suggest room for improvement.
Milk powder prices taking breather. As for the raw material prices, WMP
price has retreated from the year-high of USD5000/mt in 1Q14 to below
USD3000/mt level in September 2014 while the SMP price has also followed
suit (refer overleaf). Management attributed the decline in milk powder price to
the high stock level in China, one of the biggest consumers in the world; and
the impaired business link to Russia on the back of economic sanctions. Thus,
we expect the earnings margin to recover on the back of lower raw material
prices. We are forecasting gross margin of 32.9% in FY14 vs 32.5% achieved
in 1H14.
Impact from price increase. We revisit our earnings model and impute the
latest round of price increase into our earnings forecast. As a result, the net
profits for FY14E and FY15E were nudged higher by 2.9% and 4.4%,
respectively. Post earnings revisions, FY14E EPS still represents a negative
growth of 18.7% while FY15 EPS is forecasted to grow 13.9%.
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49.00
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Shedding lights on 2Q14 results. On its 2Q14 results, management
stressed that the operating cost was lifted by the high raw material prices,
which was amplified by the stronger USD against MYR. As a result, gross
margin saw a decline of 4ppt to 33.1% from 37.1% in 2Q13, which dragged
gross profit down by 4.3% YoY to RM88.8m (from RM92.7m) despite a top
line growth of 7.4%. As a reference, skimmed milk powder (SMP) and whole
milk powder (WMP) surged 28.4% and 26.1%, respectively, (refer overleaf) in
the Jan-Mac 2014 period as compared to the same period in 2013 (raw
material prices generally lag 3-6 months to be reflected in the operating
costs). On the top line growth, management indicated that the growth was
driven by both sales volume and the increase in selling price in Jan 2014.
Share Price Performance
Se
p
We came back from a management meeting with DLADY feeling
slightly more comforted on its near-term outlook. During the
meeting, Finance & Accounting director Mr. Ivo Ogink briefed us
on the recently released 2Q14 results, the movement of raw
material prices as well as the price increase over the range of
DLADY products in June. Maintain UNDERPERFORM with a
revised Target Price of RM44.22 (from RM42.32).
KLCI
YTD KLCI chg
YTD stock price chg
1,871.09
0.2%
-0.8%
Stock Information
Bloomberg Ticker
Market Cap (RM m)
Issued shares
52-week range (H)
52-week range (L)
3-mth avg daily vol:
Free Float
Beta
DLM MK Equity
2,961.9
64.0
48.46
45.12
6,216
31%
0.6
Major Shareholders
FRINT BEHEER IV BV
SKIM AMANAH SAHAM BU
PERMODALAN NASIONAL
51.0%
16.5%
2.1%
Summary Earnings Table
FY Dec (RM‘m)
Turnover
EBIT
PBT
Net Profit (NP)
Core NP*
Consensus (NP)
Earnings Revision
Core EPS (sen)
Core EPS growth (%)
NDPS (sen)
BVPS (RM)
Core PER
Price/NTA (x)
Net Gearing (x)
Net Dvd Yield (%)
2013A
982.7
184.2
186.7
138.3
138.3
216.0
12.1
260.0
2.94
21.4
15.8
N.Cash
5.6
2014E
1,064.5
147.9
151.4
112.4
112.4
111
2.9%
175.6
-18.7
220.0
2.5
26.3
18.2
N.Cash
4.8
2015E
1,147.1
168.7
172.5
128.0
128.0
122.5
4.4%
200.1
13.9
240.0
2.0
23.1
23.5
N.Cash
5.2
Maintain UNDERPERFORM with higher Target Price of RM44.22 (from
RM42.32). Pursuant to the earnings upgrade, the TP is adjusted higher, but
we are ascribing the same valuation of 22.1x PER, which is slightly above
+1SD over a 5-year mean. While, the price increase is positive to the
earnings growth, we do not think that the growth can be healthily supported
by volume growth in view of the weak consumer spending, although dairy
products are less discretionary in nature. Valuation appears to be on the high
side with last closing price trading at PER of 23.1x, which is close to +1SD of
5-year mean. Meanwhile, dividend yield is below 5% level which we think is
not enough to compensate for the risk of the volatile movement of raw
material prices and weakening consumer sentiment with the imminent
implementation of GST in April 2015.
PP7004/02/2013(031762)
Page 1 of 4
Dutch Lady Milk Industries
Company Update
09 September 2014
Raw Material Prices
Skimmed Milk Powder (USD/MT)
2100
1900
1700
1500
1300
1100
900
May-14
Jul-14
Sep-14
May-14
Jul-14
Sep-14
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
700
Whole Milk Powder (USD/MT)
6000
5000
4000
3000
2000
1000
Mar-14
Jan-14
Nov-13
Sep-13
Jul-13
May-13
Mar-13
Jan-13
0
Source: Global Dairy Trade, Kenanga Research
PP7004/02/2013(031762)
Page 2 of 4
Dutch Lady Milk Industries
Company Update
09 September 2014
Income Statement
FY Dec (RM m)
2011A
2012A
2013A
2014E
2015E
Revenue
810.6
882.2
982.7
1,064.5
1,147.1
EBITDA
146.3
170.3
192.6
156.2
177.6
-7.0
-7.6
-8.4
-8.4
-8.9
139.4
162.6
184.2
147.9
168.7
2.1
0.9
0.8
0.9
0.8
-0.9
-2.9
-3.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Depreciation
Operating Profit
Other Income
Interest Expense
Associate
Exceptional Items
Financial Data & Ratios
FY Dec (RM m)
2011A
Growth
2012A
2013A
2014E
2015E
Turnover (%)
16.4%
8.8%
11.4%
8.3%
7.8%
EBITDA (%)
49.4%
16.3%
13.1%
-18.9%
13.7%
Operating Profit (%)
56.2%
16.7%
13.3%
-19.7%
14.1%
PBT (%)
57.1%
17.1%
12.6%
-18.9%
13.9%
Core Net Profit (%)
69.2%
14.2%
12.1%
-18.7%
13.9%
Profitability (%)
0.0
0.0
0.0
0.0
0.0
PBT
141.6
165.8
186.7
151.4
172.5
EBITDA Margin
18.1%
19.3%
19.6%
14.7%
15.5%
Taxation
-33.5
-42.4
-48.4
-39.0
-44.4
Operating Margin
17.2%
18.4%
18.7%
13.9%
14.7%
0.0
0.0
0.0
0.0
0.0
PBT Margin
17.5%
18.8%
19.0%
14.2%
15.0%
Net Profit
108.1
123.4
138.3
112.4
128.0
Core Net Margin
13.3%
14.0%
14.1%
10.6%
11.2%
Core Net Profit
108.1
123.4
138.3
112.4
128.0
Effective Tax Rate
-23.6%
-25.6%
-25.9%
-25.8%
-25.8%
ROE
27.1%
32.2%
33.2%
35.0%
46.0%
ROA
41.7%
57.1%
73.5%
78.8%
112.0%
Minority Interest
Balance Sheet
FY Dec (RM m)
2011A
2012A
2013A
2014E
2015E
Fixed Assets
Intangibles
Assets
Other FA
71.6
73.1
77.2
77.0
77.1
2.4
1.2
1.6
1.6
1.6
13.3%
14.0%
14.1%
10.6%
11.2%
0.0
0.0
0.0
0.0
0.0
Assets Turnover (x)
0.5
0.4
0.4
0.3
0.3
Inventories
93.4
86.8
113.2
117.3
124.4
Leverage Factor (x)
1.5
1.8
2.2
2.3
2.7
Receivables
36.7
16.2
35.5
28.0
30.2
41.7%
57.1%
73.5%
78.8%
112.0%
0.0
Other CA
DuPont Analysis
Net Margin (%)
ROE (%)
1.2
0.7
1.4
1.4
1.4
Cash
193.1
204.8
187.6
166.2
164.1
Leverage
Total Assets
398.5
382.8
416.5
391.5
398.7
Debt/Asset (x)
0.0
0.0
0.0
0.0
Debt/Equity (x)
0.0
0.0
0.0
0.0
0.0
193.1
204.8
187.6
140.6
102.1
N.Cash
N.Cash
N.Cash
N.Cash
N.Cash
Net Cash/(Debt)
Payables
121.8
146.5
206.8
181.8
189.0
0.0
0.0
0.0
0.0
0.0
ST Borrowings
Other ST Liability
Net Debt/Equity (x)
Valuations
13.5
15.2
16.0
16.0
16.0
LT Borrowings
0.0
0.0
0.0
0.0
0.0
Core EPS (sen)
168.9
192.8
216.0
175.6
200.1
Other LT Liability
4.1
4.9
5.7
5.7
5.7
NDPS (sen)
95.0
260.0
260.0
220.0
240.0
Minorities Int.
0.0
0.0
0.0
0.0
0.0
BV (RM)
4.01
3.36
2.91
2.51
1.95
259.2
216.1
188.0
188.0
188.0
Core PER (x)
27.4
24.0
21.4
26.3
23.1
2.1%
5.6%
5.6%
4.8%
5.2%
11.5
13.8
15.9
18.4
23.8
1.4
1.0
1.2
1.4
1.3
Net Assets
Net Div. Yield (%)
Share Capital
64.0
64.0
64.0
64.0
64.0
Other Reserves
195.2
152.1
124.0
124.0
124.0
Equity
259.2
216.1
188.0
188.0
188.0
Cashflow Statement
FY Dec (RM m)
2011A
Operating CF
161.9
2012A
2013A
2014E
2015E
184.5
160.9
132.4
201.7
Investing CF
-7.1
-3.5
-8.3
-6.3
-8.9
Financing CF
-47.3
-169.3
-169.7
-144.3
-157.6
Change In Cash
107.5
11.7
-17.2
-18.3
35.3
27.2
81.2
68.3
81.0
141.7
Free CF
P/BV (x)
EV/EBITDA (x)
Source: Kenanga Research
Fwd PER Band
Fwd PBV Band
PRICE (RM)
PRICE (RM)
PER 9.0 x
PER 12.6 x
PER 16.3 x
PER 19.9 x
PBV 3.6 x
PBV 6.8 x
PBV 10.1 x
PBV 13.3 x
PBV 16.6 x
PER 23.5 x
55.00
70.00
65.00
60.00
50.00
45.00
55.00
50.00
40.00
45.00
35.00
40.00
30.00
35.00
25.00
30.00
25.00
20.00
20.00
15.00
15.00
10.00
10.00
Source: Bloomberg, Kenanga Research
PP7004/02/2013(031762)
Page 3 of 4
A ug-14
A ug-14
Feb-14
Feb-14
A ug-13
Aug-13
Feb-13
Feb-13
A ug-12
Aug-12
Feb-12
Feb-12
A ug-11
Aug-11
Feb-11
Feb-11
A ug-10
Aug-10
Feb-10
5.00
Feb-10
A ug-09
5.00
Aug-09
Dutch Lady Milk Industries
Company Update
09 September 2014
Stock Ratings are defined as follows:
Stock Recommendations
OUTPERFORM
MARKET PERFORM
UNDERPERFORM
: A particular stock’s Expected Total Return is MORE than 10% (an approximation to the
5-year annualised Total Return of FBMKLCI of 10.2%).
: A particular stock’s Expected Total Return is WITHIN the range of 3% to 10%.
: A particular stock’s Expected Total Return is LESS than 3% (an approximation to the
12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate).
Sector Recommendations***
OVERWEIGHT
NEUTRAL
UNDERWEIGHT
: A particular sector’s Expected Total Return is MORE than 10% (an approximation to the
5-year annualised Total Return of FBMKLCI of 10.2%).
: A particular sector’s Expected Total Return is WITHIN the range of 3% to 10%.
: A particular sector’s Expected Total Return is LESS than 3% (an approximation to the
12-month Fixed Deposit Rate of 3.15% as a proxy to Risk-Free Rate).
***Sector recommendations are defined based on market capitalisation weighted average expected total
return for stocks under our coverage.
This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not
make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to
the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This
document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees.
Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document
or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or
employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or
otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies.
Published and printed by:
KENANGA INVESTMENT BANK BERHAD (15678-H)
8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia
Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenanga.com.my
PP7004/02/2013(031762)
Chan Ken Yew
Head of Research
Page 4 of 4