CIMB upgrades Daibochi to ‘add’, ups TP to RM4.75

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KUALA LUMPUR (October 23): CIMB Investment Bank Bhd upgraded Daibochi Plastic & Packaging Industry Bhd to “add” from “hold” at RM4.25, and raised its target price (TP) to RM4.75 from RM4.38 despite the company posting a 32% drop in net profit for its third quarter ended Sept 30, 2014.

The company’s net profit plunged 32% to RM5.02 million in 3QFY14, from RM7.4 million a year ago, on the back of a 5% year-on-year (y-o-y) slip in revenue to RM83.09 million from 87.29 million.

For the nine months to Sept 30, Daibochi posted net profit of RM17.84 million, down 13% from RM20.53 million, while revenue rose 13% y-o-y to RM260.46 million.

In a note today, CIMB said the drop in 9MFY14 net profit was due to higher costs due to a 17% hike in electricity tariff at end-2013, and higher polyester and polyethylene resin and film prices.

The research house call upgrade on Daibochi was based on expectations the company would be supported by more major export orders and lower raw material prices due to the fall in crude oil price.

“The sharp fall in crude oil price could be positive for Daibochi as it could mean lower resin and plastic raw material prices, which would be significant as raw materials make up 60% of production costs.

“Crude oil prices are down 20% since July and if prices continue to decline, it would surely be positive for Daibochi,” said CIMB.

The research house also sees Daibochi registering increases in its export markets in Southeast Asia and Australia, noting that the company's strong exports have been supporting its topline over the past year.

“If all goes well, Daibochi should be getting more major export orders next year,” it said.

CIMB also noted that Daibochi could take some market share away from its peer, Tomypak Holdings Bhd, as its customers are unsure of the latter’s management due to recent shareholding changes in the company.