Stock Name: DAIBOCI
Company Name: DAIBOCHI PLASTIC & PACKAGING
Research House: CIMB
Daibochi Plastic & Packaging Industry Bhd
(May 4, RM3.20)
Maintain outperform at RM3.21 with target price of RM4.60: Despite coming in at only 76% of our forecast when annualised, Daibochi's 1QFY10 results met our and market expectations as earnings in the remaining quarters should be stronger. The company declared an interim tax-exempt dividend per share (DPS) of 3.5 sen, which was within market and our expectations.
We maintain our outperform call, earnings forecasts and RM4.60 target price, which remains based on a 20% discount to our 15 times target price-to-earnings (P/E) for the market.
Factors that could catalyse the stock include: (i) further margin expansion over the next few quarters, (ii) contracts from major non-food and beverage companies and, (iii) investors' increasing awareness of its generous dividend yields of 7%.
1QFY10 revenue climbed 7% year-on-year (y-o-y) while Ebitda (earnings before interest, tax, depreciation and amortisation) surged 26.5%. Ebitda margin was 14.4%, higher than 1QFY09's 12.2% but lower than 4QFY09's 15.9%. The quarter-on-quarter (q-o-q) margin erosion largely resulted from higher raw material costs and a 150% jump in foreign exchange (forex) loss to RM500,000 due to a stronger ringgit.
During Feb-March 2010, the ringgit firmed almost 6% to RM3.25 against the US dollar. This led to the forex loss as there is around a 60-day gap between placing of orders and payment for its goods. Furthermore, Daibochi booked RM200,000 additional expense on research and development for new products related to the electrical and electronic product testing. If not for these expenses and the forex loss, 1QFY10 Ebitda margin would have been above 15%.
As the prices Daibochi charges its MNC clients are reviewed quarterly for changes in raw material costs and forex fluctuations, Daibochi's 2QFY10 Ebitda margin is expected to be much better than 1QFY10's as the selling prices will reflect higher raw material costs and currency rates.
Daibochi should see a much stronger 2H as the company started delivering to a major pet food brand in Australia in 2Q10. It should also see higher contributions from Fonterra which began sourcing flexible packaging products from Daibochi in 1QFY10. Fonterra is the world's leading exporter of dairy products and is responsible for more than a third of the international dairy trade. - CIMB Research, May 4
This article appeared in The Edge Financial Daily, May 5, 2010.
Company Name: DAIBOCHI PLASTIC & PACKAGING
Research House: CIMB
Daibochi Plastic & Packaging Industry Bhd
(May 4, RM3.20)
Maintain outperform at RM3.21 with target price of RM4.60: Despite coming in at only 76% of our forecast when annualised, Daibochi's 1QFY10 results met our and market expectations as earnings in the remaining quarters should be stronger. The company declared an interim tax-exempt dividend per share (DPS) of 3.5 sen, which was within market and our expectations.
We maintain our outperform call, earnings forecasts and RM4.60 target price, which remains based on a 20% discount to our 15 times target price-to-earnings (P/E) for the market.
Factors that could catalyse the stock include: (i) further margin expansion over the next few quarters, (ii) contracts from major non-food and beverage companies and, (iii) investors' increasing awareness of its generous dividend yields of 7%.
1QFY10 revenue climbed 7% year-on-year (y-o-y) while Ebitda (earnings before interest, tax, depreciation and amortisation) surged 26.5%. Ebitda margin was 14.4%, higher than 1QFY09's 12.2% but lower than 4QFY09's 15.9%. The quarter-on-quarter (q-o-q) margin erosion largely resulted from higher raw material costs and a 150% jump in foreign exchange (forex) loss to RM500,000 due to a stronger ringgit.
During Feb-March 2010, the ringgit firmed almost 6% to RM3.25 against the US dollar. This led to the forex loss as there is around a 60-day gap between placing of orders and payment for its goods. Furthermore, Daibochi booked RM200,000 additional expense on research and development for new products related to the electrical and electronic product testing. If not for these expenses and the forex loss, 1QFY10 Ebitda margin would have been above 15%.
As the prices Daibochi charges its MNC clients are reviewed quarterly for changes in raw material costs and forex fluctuations, Daibochi's 2QFY10 Ebitda margin is expected to be much better than 1QFY10's as the selling prices will reflect higher raw material costs and currency rates.
Daibochi should see a much stronger 2H as the company started delivering to a major pet food brand in Australia in 2Q10. It should also see higher contributions from Fonterra which began sourcing flexible packaging products from Daibochi in 1QFY10. Fonterra is the world's leading exporter of dairy products and is responsible for more than a third of the international dairy trade. - CIMB Research, May 4
This article appeared in The Edge Financial Daily, May 5, 2010.
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