The firm is expected to be able to focus more on its converting business allowing them to serve their customers better
by SHAZNI ONG / pic by TMR GRAPHIC
DAIBOCHI Bhd eyes growth in customer coverage in food and beverage (F&B) plastic packaging and fast-moving consumer goods (FMCG) industry across South-East Asia and Oceania through its integrated operations with Scientex Bhd.
MIDF Amanah Investment Bank Bhd (MIDF Research) noted post-acquisition by Scientex, Daibochi could enhance operational efficiencies via ongoing capacity expansions, reduced wastage and improved inventory controls.
“By leveraging on Scientex’s upstream film production capabilities, we expect Daibochi to be able to focus more on its converting business allowing them to serve their customers better, as well as having the ability to offer more advanced and customised solutions through its joint research and development with Scientex,” the firm said in a note yesterday.
The integration also assists the group in pursuing more growth opportunities across South-East Asia and Oceania, premised on the strong demand for flexible plastic packaging within the expanding F&B and FMCG industry.
Last Thursday, Daibochi posted a net profit of RM47.67 million on revenue of RM619.28 million for the financial year ended July 31, 2020 (FY20).
The domestic market made up RM343.05 million or 55.4% of the group’s revenue, said the packaging manufacturer which also operates in Myanmar and Australia.
Daibochi also said it chalked up a net profit of RM11.22 million and revenue of RM155.77 million in the fourth quarter FY20.
There are no comparable figures as the company changed its financial year from Dec 31 to July 31, to coincide with the financial year-end of its holding company, Scientex.
MIDF Research recalled that the group had announced to allocate an additional RM40 million to purchase eight more lines.
“With these purchases, the total RM100 million worth of capital expenditure will cumulatively bring in a total of five printing, eight lamination and eight bagging machines for the group, with 14 of them expected to be commissioned within FY21.
“On another note, we gather that Daibochi reviewed over 100 product developments that were conducted in-house during FY20.
“To note, roughly 25% of these product developments are for sustainable structures, and within that 25%, an approximate of 30% of it have been commercialised,” the firm said.
Taking all these into consideration, MIDF Research anticipates more innovations to be rolled out for a wider range of packaging formats, supporting the group to continue to cater to the demands of their existing customers and have the ability to further expand their market reach in the long run.
MIDF Research, which maintained a ‘Buy’ call with a slightly adjusted target price (TP) of RM2.98 from RM2.92 previously, said it makes no changes to its earnings forecasts on Daibochi.
“We derive our TP by pegging its FY21 earnings per share of 15.4 sen to price-earnings ratio of 19.4 times which equates plus one standard deviation to the group’s one-year historical average. The estimated dividend yield is +1.5%,” the firm said.
CGS-CIMB Securities Sdn Bhd analyst Kamarul Anwar said the firm sees that Daibochi’s fortunes are only going to improve as the group is going all out to win more business from its multinational clients amid consolidation in the packaging conversion space.
“It is propitious that Daibochi has a strong strategic shareholder in Scientex breathing new life into the company and an enviable clientele consisting of major F&B multinationals.
“Demand for its products should remain strong, in our view, especially after its move to introduce sustainable packaging materials,” he said.
Daibochi closed lower at RM2.69 with a market cap of RM808.6 million yesterday.