• Upgrade to BUY (TP: RM34.00). Dutch Lady’s (DLM) 9MFY24 core net profit of RM103.4mn (+34.7% YoY) was in-line with our full-year forecast, accounting at 78%. DLM’s 3QFY24 core net profit declined to RM30.4mn (- 17.2% QoQ, -13.3% YoY), primarily due to the unavailability of some noncore Dutch Lady products for sale during the transition to its new factory and the absence of higher promotion sales campaigns. The group has completed its transition to full operations at the new Bandar Enstek factory in 3Q24. We are positive on DLM's outlook, underpinned by stable demand as well as long-term earnings growth, supported by the efficiency and capacity enhancements from the new facility. We upgrade to BUY from HOLD call with unchanged TP of RM34.00, based on DDM valuation with WACC of 7.5% and a TG of 2%. DLM has declared a 2nd interim DPS of 25sen, bringing YTD FY24 DPS to 50sen.

• Key Highlights. DLM’s 3QFY24 revenue declined to RM355.5mn (-1.5% QoQ, -4.6% YoY), mainly due to the discontinued production and distribution of some non-core Dutch Lady products during the transition to the new factory, as well as the absence of higher promotion sales campaigns. Core net profit fell further to RM30.4mn (-17.2% QoQ, -13.3% YoY), impacted by lower sales, higher cost of sales and negative revaluation of currency hedges. Nevertheless, DLM’s 9MFY24 core net profit surged by 34.7% YoY, driven by a better product mix and price increases in certain product ranges, alongside lower operating costs and effective tax rate.

• Earning Revision. No changes in our forecast.

• Outlook. The uptrend in global dairy raw material price and currency fluctuation, couple with minimum wage hike, remain a key challenges moving forward. Despite this, we remain positive on DLM’s long term prospects, supported by stable demand and better earnings growth potential from its new Bandar Enstek factory, especially with the new advanced manufacturing and distribution facilities. Additionally, DLM’s commitment to supporting local dairy farmers and adapting to evolving consumer preferences positions the company well to strengthen its presence in the Malaysian dairy market.

Source: BIMB Securities Research - 20 Nov 2024