It said on Tuesday the possible de-rating catalysts are rising raw material costs and weak domestic revenue.
“Still a Reduce as stock remains expensive We maintain our EPS forecasts but our target price rises to RM1.88 (still based on 15.6 times FY19F P/E, a 20% premium over the sector average in view of its Myanmar JV’s attractive long-term growth prospects) as we roll forward to FY19F,” it said.
Its previous target price was RM1.48 and the last traded price was RM2.20.
To recap, 9M17 revenue rose 0.8% on-year to RM283mil and its quarterly revenue exceeded RM100mil for the first time ever.
Higher raw material costs were offset by lower waste and better operational efficiency. Third interim dividend per share (DPS) of 1.15 sen was in line with expectations. Year-to-date dividend per share is at 3.47sen or 63% net dividend payout ratio.
CIMB Research said Daibochi revised its dividend policy to exclude the earnings from its Myanmar JV from distributable income – it will now pay at least 60% of net profit excluding Myanmar operations.
“Our FY17-FY19F DPS forecasts already assume 60% net dividend payout ratio excluding Myanmar JV earnings. We understand the company is not allowed to take out money from the Myanmar JV over the next two years,” it said.
The 60%-owned Myanmar JV started operations in 3Q17 and the JV recorded RM6.5mil revenue and RM1.95mil in profit before tax (PBT) in 3Q.
Myanmar PBT margin was 29% compared to only 9% for Daibochi’s Malaysia operations.
Myanmar’s higher PBT margin allows the company to do the lower profit margin business in Malaysia, which Daibochi did not want to do in the past.
In 3Q17, the Myanmar JV contributed 19% of the Group’s PBT, which is quite an achievement in the first quarter of operations.
Daibochi’s net gearing rose from 0.2 times at end-June to 0.35 times at end-September.
Net debt as at end-September was RM74.5mil and the increase in debt was mainly to finance the Myanmar JV investment of US$6.8mil (RM29mil) in early July.
“This should not be a concern as the expected strong operational cashflow from the Myanmar JV should help Daibochi reduce its net gearing in the next one to two years,” it said.
CIMB Research remains long-term positive on Daibochi’s move to Myanmar. The company has the first-mover advantage in this country.
“Myanmar currently does not have many MNCs but we believe it would only be a matter of time before more MNCs set up operations in Myanmar.
“Daibochi has been working with major MNCs in the region and as such, we believe the Daibochi JV has a strong chance of getting the MNC business in Myanmar,” it said.
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