This article first appeared in The Edge Financial Daily on August 11, 2017
KUALA LUMPUR: Daibochi Plastic and Packaging Industry Bhd’s earnings for its first half ended June 30, 2017 (1HFY17) came in below consensus forecast, but its managing director Thomas Lim gave an assurance that the company is confident its 2HFY17 revenue could see a double-digit growth versus the first half, driven by its Myanmar joint venture (JV) and new projects materialising for the group.
“We will be able to consolidate contributions from Myanmar with both our top line and bottom line starting from [the third quarter (3Q)] this year. Also, Daibochi has landed with three new customers from Indonesia, which will start to take off in 3Q this year as well”, Lim told The Edge Financial Daily when contacted.
On Wednesday, Daibochi reported that its net profit fell 17% to RM5.05 million in the second quarter ended June 30, 2017, from RM6.08 million a year earlier, while revenue declined 11% to RM86.84 million from RM97.03 million.
1HFY17 net profit was 14% lower at RM10.81 million versus RM12.58 million a year earlier, with a 3% fall in revenue to RM180.95 million from RM186.73 million.
CIMB Investment Bank Bhd said Daibochi’s 1HFY17 net profit accounted for only 38% of the bank’s full-year forecast, mainly due to weak export sales in the second quarter.
“We cut our FY17F EPS (FY17 forecast earnings per share) by 6.4% to reflect the weak 2Q sales and higher raw material price outlook, but keep our FY18F-FY19F EPS. Our [RM1.48] target price (TP) remains, still based on 15.6 times 2018 price-earnings ratio (PER), a 20% premium over the sector average, in view of its Myanmar JV’s attractive long-term growth prospects.
“Possible de-rating catalysts are further operational cost pressures and weak domestic revenue. Daibochi remains a “reduce”, trading at an expensive 2018 fully-diluted 20.8 times PER, compared with the sector’s 11.9 times PER,” CIMB analyst Nigel Foo wrote in a note yesterday.
MIDF Amanah Investment Bank Bhd analyst Ng Bei Shan said Daibochi’s 1HFY17 results were within MIDF’s expectations.
“1HFY17 results [are] largely within expectations, as 1HFY17 earnings make up for 38.3% of our full-year earnings forecast, while revenue consists of 45% of our full-year revenue estimation. Maintain “buy” with TP of RM2.51 per share,” Ng said.
MIDF reasoned that Daibochi could see stronger second half-year earnings, since its Philippines customer has since resumed operations and should provide a normalised contribution moving forward.
MIDF added that Daibochi’s Myanmar JV company, Daibochi Packaging (Myanmar) Co Ltd (DPM), is expected to start exporting to price-sensitive customers in 3Q, and has been aggressively pursuing new business opportunities from food and beverages and fast-moving consumer goods in Myanmar.
“It (DPM) is also looking at new beverage labelling business. These will contribute to the positive growth of DPM in FY17, which will also lead to stronger performance for Daibochi in the second half”, said MIDF.
In its Bursa filing on Wednesday, Daibochi revealed that the drop in its profit was in tandem with lower revenue, besides being attributed to the double-digit hike in raw material costs in line with higher global crude oil prices and a weaker ringgit against the US dollar, read the report.
Its revenue decline, meanwhile, was due to an operational hiccup at a major Philippine customer, which led to softer export sales for the company.