16 November 2012

Neutral, with a target price of RM3.02: The outlook for the consumer sector remains optimistic. Higher disposable income is expected after the introduction of Budget 2013 and the minimum wage policy that favours the food and beverage (F&B) industry.

Regionally, we believe Daibochi will keep its track record as the largest supplier of Nestle Milo packaging in Southeast Asia. We look forward to seeing more expansion in Australia which will help to diversify the group’s geographical income stream.

The 5% dividend yield stays above industry level. We believe that Daibochi will continue to strive for better results in the coming quarters. The company will reward shareholders with a reasonable dividend payout.
Fluctuation in raw material supply and price can directly impact sales growth. Since packaging has direct contact with goods including F&B items, a systematic and reliable manufacturing process with a high level of food safety is required.

Daibochi’s revenue will be affected by the fluctuation in order volume from key customers such as Nestle, Cadbury and Kraft.

We believe Scientex Bhd’s acquisition bid for GW Plastics Holdings Bhd will impact Daibochi’s business since both Scientex and GW are Daibochi suppliers.

We expect revenue for the financial year ending Dec 31, 2013 (FY13) to improve to RM292.8 million due to its higher stake in its subsidiary in Australia and fruitful results from the medical and electrical and electronic sectors. More in-house metalisation work, and continual development in high-barrier film are Daibochi’s strengths. Therefore, we expect the company to encounter price amendments on raw materials.

We have a fair value of RM3.02 for Daibochi, based on a forward price-earnings ratio of 10 times and estimated FY13 earnings per share of 30.2 sen.