MIDF Research keeps 'buy' call on Daibochi, raises target price to RM2.94

TheEdge Thu, Dec 17, 2020 11:35am - 4 months ago

KUALA LUMPUR (Dec 17): MIDF Research has kept its "buy" call for flexible packaging manufacturer Daibochi Bhd but raised its target price (TP) to RM2.94, from RM2.92 earlier, based on a price-earnings ratio (PER) of 19 times earnings per share (EPS) of 15.5 sen for the financial year ending July 31, 2022 (FY22).

In a note, the firm said Daibochi's new TP implies a 12.9% higher expected total return.

"Moving forward, we see prospects for Daibochi as exciting, to be fuelled by capacity expansion initiatives which will boost production, an increase in coverage of new product categories in the food and beverage (F&B) and fast-moving consumer goods (FMCG) segments, and a larger customer base in Southeast Asia and Oceania. Having said that, we remain cautious about potential downside risk, namely rising raw material prices," it said.

Yesterday, the manufacturer's executive director Low Jin Wei said it is on track to expand its capacity by 60%, besides venturing into sustainable packaging.

MIDF noted that it recently acquired new printing, lamination and bagging machines, as well as jointly developed products, such as fully-recyclable polypropylene (PP)-based mono-material laminates with its customers and Scientex Bhd.

The research firm said Daibochi's earnings, released yesterday, came in at 28% of its full-year estimate and 23% of the consensus.

To recap, its net profit for the first quarter ended Oct 31, 2020 (1QFY21) rose 16.51% to RM12.79 million, from RM10.98 million a year ago, driven by higher sales to major consumer brands.

The group’s revenue for 1QFY21 grew 2.7% to RM156.68 million, from RM152.56 million, led by contributions from packaging sales in the Malaysian market, which expanded 5.1% to RM88.5 million, from RM84.2 million previously, its filing with Bursa Malaysia showed.

On a quarter-on-quarter (q-o-q) basis, the group’s net profit grew 13.92% from RM11.23 million for 4QFY20, while revenue climbed 0.58% from RM155.77 million. The group did not declare any dividend for the latest quarter.

At 11.08am today, Daibochi had risen two sen or 0.75% to RM2.67, giving it a market capitalisation of RM867.48 million.

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