KUALA LUMPUR: CIMB Research has downgraded Daibochi from Add to Hold with a target price of RM4.72 based on a 2016 P/E of 13 times, on par with the sector.
In a note on Thursday, the research house said 2015 should be a better year in view of the lower raw material prices and higher export topline growth for Daibochi.
"However, we downgrade our rating from an Add to a Hold as the stock is not cheap following the 10% price rally the past month.
"We prefer Thong Guan for exposure to the packaging sector," it said.
It added that crude oil’s sharp price decline over the past few months has been positive for the company.
"Raw materials make up more than 60% of its production costsand the price of its main raw materials, like polyethylene and polyester resins (derivatives of crude oil), have been falling over the past few months.
"Daibochi generally benefits from profit margin expansion during periods of declining raw material prices. We have assumed lower raw material prices in our earnings forecasts," it said.
It said that Daibochi started commercial production for a major F&B customer (based in Thailand) in 3Q13 and CIMB expects the company to secure more orders from this customer soon.
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