DAIBOCI (8125) : Daibochi Plastic & Packaging - Signs of recovery
Target RM4.75 (Stock Rating: ADD)
At its 3Q14 briefing, Daibochi voiced its optimism over its topline growth prospects, which will be fuelled by export markets, particularly Australia. Another positive is raw material prices which have been falling since Sep. We maintain our EPS forecasts and target price, which is based on an unchanged 2016 P/E of 13x, on par with the sector. The stock remains an Add, with potential catalysts being major export orders and a further decline in raw material prices
What Happened
Today’s 3Q14 results briefing offered a few positive surprises i) Raw material prices started to fall in Sep, which will benefit Daibochi as raw materials make up 60% of its production costs. The company had been experiencing cost pressure from high raw material prices since the start of the year. ii) Orders from the domestic F&B players showed signs of recovery from Sep onwards. 3Q14 revenue had fallen 4.5% qoq due to slower orders from the domestic F&B customers. iii) Management is looking at ways to reduce wastage. Given the rising operational cost pressure, management is looking at different ways to improve cost efficiency. iv) Topline growth prospects remain bullish, driven by export markets, in particular Australia.
What We Think
Daibochi should start to enjoy lower raw material prices in 4Q14 as crude oil prices are down 20% from the Jul peak. Most of its raw materials like polyester resin and films are derivatives of crude oil and polyester prices track crude oil. Management indicated that it saw signs of lower raw material prices from Sep onwards and this should strengthen Daibochi’s profit margin over the next few quarters. Topline growth prospects remain bullish, with growth expected to come from Australia. Daibochi is GST-ready. Operational cash flow could be slightly affected after GST kicks in from Apr but this is manageable for the company.
What You Should Do
Investors should accumulate the stock on price weakness. A recovery is in store from 4Q14 onwards. With raw material prices falling and topline growth getting a boost from export sales, 2015 should be a year of recovery for Daibochi.
Source: CIMB Daybreak - 24 October 2014
Target RM4.75 (Stock Rating: ADD)
At its 3Q14 briefing, Daibochi voiced its optimism over its topline growth prospects, which will be fuelled by export markets, particularly Australia. Another positive is raw material prices which have been falling since Sep. We maintain our EPS forecasts and target price, which is based on an unchanged 2016 P/E of 13x, on par with the sector. The stock remains an Add, with potential catalysts being major export orders and a further decline in raw material prices
What Happened
Today’s 3Q14 results briefing offered a few positive surprises i) Raw material prices started to fall in Sep, which will benefit Daibochi as raw materials make up 60% of its production costs. The company had been experiencing cost pressure from high raw material prices since the start of the year. ii) Orders from the domestic F&B players showed signs of recovery from Sep onwards. 3Q14 revenue had fallen 4.5% qoq due to slower orders from the domestic F&B customers. iii) Management is looking at ways to reduce wastage. Given the rising operational cost pressure, management is looking at different ways to improve cost efficiency. iv) Topline growth prospects remain bullish, driven by export markets, in particular Australia.
What We Think
Daibochi should start to enjoy lower raw material prices in 4Q14 as crude oil prices are down 20% from the Jul peak. Most of its raw materials like polyester resin and films are derivatives of crude oil and polyester prices track crude oil. Management indicated that it saw signs of lower raw material prices from Sep onwards and this should strengthen Daibochi’s profit margin over the next few quarters. Topline growth prospects remain bullish, with growth expected to come from Australia. Daibochi is GST-ready. Operational cash flow could be slightly affected after GST kicks in from Apr but this is manageable for the company.
What You Should Do
Investors should accumulate the stock on price weakness. A recovery is in store from 4Q14 onwards. With raw material prices falling and topline growth getting a boost from export sales, 2015 should be a year of recovery for Daibochi.
Source: CIMB Daybreak - 24 October 2014
