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This article first appeared in The Edge Financial Daily, on August 12, 2016.

 

Daibochi Plastic & Packaging Industry Bhd 
(Aug 11, RM2.09)

Maintain neutral with an unchanged target price of RM2.14: Daibochi Plastic & Packaging Industry Bhd’s second quarter ended June 30, 2016 (2QFY16) earnings were within our expectations yet lagged the consensus as they accounted for 47.1% and only 43.5% of respective full-year earnings forecasts. Revenue for 2QFY16 increased to RM97 million, attributable to a 20% year-on-year (y-o-y) increase in export sales, especially to the Asean region and Australia. However, revenue from its domestic market fell by 5% y-o-y.

Despite the high single-digit increase in revenue, Daibochi’s earnings declined by 15.5% y-o-y to RM6.1 million. This was mainly due to higher operating expenses, coupled with the effects of the revised wage policy implemented on Jan 1, 2016. The higher operating expenses were due to repairs and maintenance of machinery, airfreight of a new product launch, product mix and increased wastage of resources. The group’s profit was also affected by an associate that incurred a minor loss of RM51,000. Daibochi declared its second tax-exempt dividend for FY16 of 1.33 sen per share, translating into a cumulative first half ended June 30, 2016 dividend of 2.78 sen per share.

Going forward, we expect further top-line growth to stem from the company’s export sales and introduction of new products. For its expansion plans, Daibochi has commenced the second-phase expansion of Daibochi Plastic and Plant 2 with a capital expenditure of approximately RM13 million. The construction of the building is expected to be completed by 4QFY16. The group also received a new film-making machine at end-June. This machine is expected to start commissioning by the end of this year and is expected to further enhance the operational capacity of the company. — MIDF Research, Aug 11

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