Daibochi Plastic & Packaging -
Strong demand and property boost in 3Q
At an annualised 98% of our FY13 forecast, Daibochi's 9MFY13 EPS was in line with market and our expectations as we expect a stronger 4Q. The strong export demand and lower crude oil prices in the past 1-2 months are positive factors for the company.
We maintain our FY14-16 EPS forecasts but raise our target price as we roll forward to end-2015, applying 13x CY15 P/E, our sector P/E target. We upgrade Daibochi from a Neutral to Outperform in view of likely lower raw material price risks after the recent sharp fall in crude oil prices. Securing major export orders and further declines in oil prices could catalyse the stock. Daibochi is our top pick in the packaging sector.
3Q13 revenue up 32.9%
Daibochi's 3Q13 revenue was up a strong 32.9% yoy due to strong packaging sales and a RM6.2m land sale. 3Q13 packaging revenue at RM80.5m was a new record for the company. We see two reasons for this: 1) pent-up demand since Jul following 2Q13's relatively weak revenue (RM69.5m) on political concerns (Malaysia's general election was in May), and 2) the maiden contribution from a new major MNC customer. Its 4sen interim DPS was as we expected. YTD, the company has declared DPS of 11sen.
Demand remains strong
Daibochi's packaging business demand has recovered strongly since Jul, and it has been very busy meeting orders in the past few months. In 3Q13, the company started its commercial production orders for a major F&B player in the region; the full impact should be seen from 4Q13 onwards.
New plant up by year-end
Construction of its new factory is already complete and installation of machinery should be done by end- 4Q13. Commercial production should start from Feb-2014 onwards. We estimate production capacity rising 20-30% as a result. We will seek more information at Daibochi's 3Q13 results briefing tomorrow morning.
Publish date: 08/11/13