Diabochi

Diabochi

Postby winston » Thu Oct 23, 2014 8:52 am

not vested

Diabochi upgraded to Add at CIMB Research

KUALA LUMPUR: CIMB Equities Research is upgrading Daibochi from Hold to Add, as the export markets are expected to drive future top line growth, while raw material prices should fall after the recent sharp decline in crude oil prices.

It said on Thursday most of the company’s raw materials are plastic resins and films, which are derivative of crude oil.

“Daibochi’s profit margin should see a strong recovery in 2015 after experiencing high raw material prices the past year. Top line growth should come from Australia and the Asean markets.

“Potential catalysts for the stock include lower raw material prices and more major export secured orders,” it said.

Commenting on the financial results, CIMB Research said despite a 13.2% on-year rise in 9M14 revenue, Daibochi saw net profit slippage of 13.6%.

Interim DPS was 2.5 sen, slightly below expectations. Year-to-date dividend per share is 9.5 sen, working out to a payout ratio of 65%.

The drop in 9M14 net profit resulted mainly from higher costs, a 17% hike in electricity tariff at end-2013 and higher polyester and polyethylene resin & film prices.

“Worth noting is the 4.8% qoq fall in 3Q14 revenue, indicative of a slowdown in the F&B sector during the quarter.

“In the last briefing, Daibochi had already indicated to us that local F&B customers had been seeing some signs of a slowdown since Jun. However, this phase was temporary as demand recovered from September onwards,” it said.

CIMB Research said The sharp fall in crude oil price could be positive for Daibochi as it could mean lower resin and plastic raw material prices, which would be significant as raw materials make up 60% of production costs.

“Management’s view in the last quarter was that raw material prices had been too high over the past year and it was looking for prices to fall. Crude oil prices are down 20% since Jul and if prices continue to decline, it would surely be positive for Daibochi.

“ASEAN and Australia are markets that offer strong long-term potential. Daibochi’s topline has been strong over the past year, particularly from export markets. If all goes well, Daibochi should be getting more major export orders next year.

“In addition, the company could soon take some market share away from its peer, Tomypak Holdings as customers are uncertain about Tomypak’s management in view of the recent shareholding changes in the company,” CIMB Research said.

Source: The Star
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