KUALA LUMPUR: Dutch Lady Milk Industries Bhd
is expected to see weaker financial results in the second half of this year, due to the absence of major festivities and cost pressures, according to Kenanga Research.The research unit pointed out that cost pressures will persist with extended supply chain disruptions as well as a prolonged Russian-Ukraine war.
“We also believe Dutch Lady has moral as well as environmental, social, and governance obligations not to excessively raise prices of its staple food products that make up the daily diet of the population,” said Kenanga Research.
This is in reference to the group’s manufacturing of an extensive range of dairy-based products.
On a positive note, the research unit noted that the Global Dairy Trade price index has been trending downwards since June, similar to 2021 levels, and it expects a recovery in Dutch Lady’s margins for 2023.
Kenanga Research said Dutch Lady has good leverage from the strength of brands, and the dietary need and recognition of the goodness and nutritional value of milk is rising.
“Its dairy products are also popular among Malaysians. Hence, we expect its sales to continue to be robust and normalise to pre-pandemic levels, averaging around the RM550mil range in the second half,” said the research unit.
Kenanga Research noted that Dutch Lady’s first half revenue grew 18% to RM640mil, underpinned by the reopening of the economy, strong Ramadhan sales and price hikes in the second quarter.
However, Dutch Lady’s net profit dropped 5% to RM42.1mil in the first half, as the price hikes were not enough to offset the increase of input costs.
“In other words, the company opted to absorb a significant portion of the higher input costs. We deem the results to be below expectation as we expect a weaker second half on the back of margin erosion,” said the research unit.
