DLADY – Fundamental Analysis (28 Apr 2016)

Excel – Download the analysis file

Latest Financial – Q1 2016 Financial Report (25 Apr 2016)

FY16 Q1 Results Highlight:

  • 26 Apr 2016 – YoY, 1Q16 revenue rose 26.9% to RM249.8m as 1Q15 was exceptionally weak due to planned phasing in of the new re-launch of Dutch Lady Children Formula Milk, which resulted in the rundown of sales prior to the re-launch. Gross profit margin expanded by 7.9ppt to 43.5% thanks to favourable milk powder costs (-30%), which pushed gross profit higher by 54.8% to RM108.6m. As a result, net profit catapulted 99.0% to RM33.9m.
  • 26 Apr 2016 – QoQ, 1Q16 revenue shrank by 7.8% to RM249.8m due to seasonality as the Chinese New Year during the quarter cut numbers of selling days short. However, PBT still managed to surge 33.3% to RM45.8m due to the swing in distribution expenses recognition as well as the more favourable raw material prices (-14%) in between the quarters. Net profit grew 34.4% to RM33.9m, further aided by a slight lower effective tax rate of 26.0% (vs 4Q15: 26.6%).

Valuation:

DLADY-FY16Q1-Football-Field

In my opinion, fair value of DLADY range from 50 to 60. Uncertainty risk of fair value is from MEDIUM to VERY HIGH. In long term (10 years), I think DLADY worth 77 to 84. That’s why I accumulating this stock for my kids.

Going Forward:

  • I am positive with DLADY’s future:
    • Its solid fundamentals and strong branding position
    • Aggressive marketing and promotional activities
    • Robust demand of diary product in the long-term as Malaysia’s population is projected to reach 38 million people by 2040 from 30 million currently.
    • 25 Aug 2015 – To date, Dutch Lady had launched a new range of liquid milk products under the name of Dutch Lady PureFarm in an effort to refresh the brand.in addition, Dutch Lady have also strengthened our ready-to-drink products.
    • The Group has re-launched Dutch Lady Children Formula Milk since early FY15 and also repackaged its UHT milk to highlight the freshness of its milk as well as mother company, Friesland Campina’s 140 years of farming heritage. The marketing strategy is essential in building the brand equity as well as stimulating the consumer demand with the new image of its products.
  • Concern:
    • 25 Aug 2015 – Milk powder prices succumbed to multiple year-low in early-August due to the concerns of slowing demand from China and oversupply situation. However, the volatility persists as latest figures in mid-August show strong rebound of 7.2%-16.7% in a short period which we believe was driven by the 33% output cut by Fonterra, the world’s biggest milk supplier.
  • DLADY valuation is still attractive, and it is a very defensive stock.
  • I will continue to hold and accumulate this stock for my kids.

At the time of writing, my family members owned shares of DLADY.

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