Daibochi’s 1Q earnings below expectation on higher opex


DAIBOCHI Bhd’s first quarter (1Q) net profit of RM9.8 million (ended Oct 31, 2021) was below analyst’s expectations at 17% and 19% of consensus full-year estimates. 

MIDF Research, in a note on the company yesterday, stated that the deviation was due to higher than expected operating costs (opex) due to rising raw material prices and freight charges. 

Its quarter-on-quarter (QoQ) revenue increased to RM180.3 million or 34.8% QoQ due to higher contributions from both its domestic and export markets and low-base. 

According to MIDF, Daibochi’s lower sales in 4Q21 was attributable to lower demand from the domestic market and the disruptions in Daibochi’s operations. 

“On a yearly basis, 1Q revenue grew by 15.1% year-on-year (YoY) particularly due to higher sales derived from the export market which makes up 47.1% in FY22 from 43.5% in FY21,” stated MIDF. 

The packaging material maker’s operating profit declined by almost half to RM9.5 million or 45.9% YoY due to the high freight cost and raw material prices. 

“The company had also incurred additional expenses related to the Covid-19 containment measures. Consequently, normalised PATAMI in 1Q22 was lower by 30% YoY,” MIDF stated. 

The broker nevertheless maintained its top-line estimates for Daibochi’s FY22E and FY23F but revised downwards its earnings estimates to RM43.8 million and RM51.4 million respectively, factoring in higher opex. 

“We are also introducing our FY24F earnings estimate at RM55.7 million. The company has announced an interim dividend of 2.5 sen,” it noted. 

MIDF maintained its ‘Neutral’ call on Daibochi and target price of RM2.70, pegged to FY22 earning per share of 13.39 sen and price earning ratio of 20.1 times. 

“We are sanguine on the overall prospects of the company due to the increasing demand in sustainable packaging driven by the food and beverages and fast-moving consumer goods sectors,” it added. 

The key risks to the stocks are the continued uptrend in plastic resin prices and freight costs, as well as prolonged political instability in Myanmar which may cause disruptions to the group’s operations.