Saturday 11 May 2024

DLADY - Turning the Corner?

Page 16 of The Edge Malaysia (13 May – 19 May 2024) carries an article titled “Completion of Dutch Lady’s New Facility Sparks Anticipation of Higher Dividend”.

The share price of DLADY rallied in 2012 as the dividend for 2012 jumped from 80sen/share a year ago to 260sen/share. Between 2013 and 2018, the share price was traded between the band of RM40 to RM80 before the substantial cut in dividend payments (from at least RM2/share a year) to fund the construction of new plant in Bandar Enstek. Coupled with the surge in prices of raw materials, this has led to a significant decline in DLADY’s share price from 2019 to 2023.

With the prices of skimmed milk powder and whole milk powder normalising, the operating profit and margin of DLADY in 2H23 have somewhat recovered. 

If we annualise the adjusted operating profit for 2H23 (excluding accelerated depreciation and one-off items), it actually surpasses the yearly operating profit for 2011 to 2018. However, the share price of DLADY is still trading below the RM40 to RM80 range, probably because of lower dividends and the earnings being masked by accelerated depreciation and one-off items.

# In line with the earlier announced investment in its future manufacturing activities, DLADY continued the accelerated depreciation of its assets in the Petaling Jaya factory that cannot be transitioned to the new site. As the construction of the state-of-the-art IR4.0 manufacturing facility in Bandar Enstek progresses, other one-off operating costs related to activities for the construction and transition towards the new site are incurred.

More importantly, DLADY has been gaining market share in Malaysia and experiencing volume growth in recent years.

The state-of-the-art IR4.0 plant in Bandar Enstek will double the capacity of the existing plant in PJ, with a room to further double the capacity (4x of PJ capacity). 

The new plant in Bandar Enstek is expected to be operational by end-2024. Usually a new plant will need to go through the gestation period before profit and dividends normalise. 

When the new plant, with a 100% increase in capacity, runs at optimal utilisation, what will be the profit, annual dividend and share price?  

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