by ANIS HAZIM / pic credit: daibochi.com
DAIBOCHI Bhd’s financial year of 2021 (FY21) performance came in largely within analyst expectations but below consensus as its profit after tax and minority interest (PATAMI) normalised at RM48.6 million.
MIDF Investment Bank Bhd stated that Daibochi’s top line saw a decline of 14.2% year-on-year (YoY) in the fourth quarter (4Q) to RM133.7 million.
MIDF added that there was a lower demand for its products and lower output produced as the operations of the group and its local customers were disrupted by the restrictions imposed by the authority to contain the virus outbreak.
Its full-year turnover decreased marginally by 2.8% YoY to RM601.9 million of which 55.3% was contributed by domestic sales and the remaining 44.7% was derived from export sales, stated MIDF in a research note yesterday.
Daibochi’s operating profit dipped by 22.7% YoY to RM52.2 million as it incurred higher operating costs due to the rise in raw material prices and freight charges.
“The containment measures that were in place to comply with the standard operating procedures (SOPs) came with a hefty price tag. Nonetheless, applicable tax incentives granted to Daibochi due to its ongoing expansion became the saviour for its PATAMI of RM47 million which only saw a marginal decline of 1.3% YoY,” said MIDF.
Daibochi stated that there was an order backlog during its recent analyst briefing.
There was an order backlog created in July due to the reduction in workforce capacity which is expected to be normalised during the 1Q22 period as the operations had fully resumed by the end of August, noted MIDF.
Daibochi has been buying more raw materials in preparation for higher demand from the customers as the company has been maintaining a relatively higher buffer stock of packaging goods amid uncertainties.
Daibochi has also been focusing on hiring locals in view of the restrictions on the employment of foreign workers.
“The group is currently undergoing workforce reshuffling as it is automating some of the processes in the departments that are heavy in manpower,” stated MIDF.
MIDF trimmed Daibochi’s FY22E and FY23F earnings estimates downwards by 11.6% and 12.1% to RM53.3 million and RM58.1 million respectively in view of the rising operating costs.
“This is also to factor in potential lower output as the operations in Myanmar are still being challenged by the ongoing political turmoil in the country despite the resumption of its financial markets and port services,” added MIDF.
MIDF downgraded Daibochi to “Neutral” with a target price of RM2.70 which is equivalent to the privatisation offer price remaining unchanged.
The key risks to the call include a continued rise in plastic resins prices and freight charges, prolonged political instability in Myanmar and a surge in Covid-19 cases which will cause further disruptions to the group’s operations.