Fundamental Analysis as of FY14 – http://www.slideshare.net/lcchong76/dlady-fundamental-analysis-fy14

Excel – http://1drv.ms/1WYroOK

Latest Financial – Q1 2016 Financial Report (17 Nov 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4921957

FY15 Q3 Results Highlight:

• 18 Nov 2015 – YoY, 9M15 revenue fell marginally by 0.8% to RM730.8m as we believe the volume decline arising from product relaunching has been buffered by the c.15% price increase in end FY14. Operating profit surged 51.0% to RM154.6m which the Group attributed to lower raw material costs (9M15 milk powder prices fell 37.7%-44.9%) and positive foreign currency hedging effects, which expanded operating margin by 7.3ppt to 21.2%. As a result, net profit jumped 52.5% to RM115.8m
• 18 Nov 2015 – QoQ, 3Q15 revenue was 8.2% lower at RM255.6m due to high base effect as 2Q15 was aided by-product re-launch. Operating profit managed to inch up by 0.3% to RM65.7m thanks to favourable raw material prices. Net profit climbed 2.4% to RM50.0m, which was a record quarterly profit for the Group, further helped by a marginally lower effective tax rate of 24.0% (2Q15: 25.7%) as well.

Valuation:

• Absolute EY%:
  • Trailing:
    • FY14 (EPS: 1.716) – 39.842 (Uncertainty Risk: VERY HIGH)
    • R4Q (EPS: 2.339) – 54.303 (Uncertainty Risk: MEDIUM)
  • Forward:
    • FY15 (EPS: 2.044 ± 5%) – From 45.077 to 49.822 (Uncertainty Risk: HIGH to VERY HIGH)
    • FY16 (EPS: 2.227 ± 5%) – From 49.113 to 54.283 (Uncertainty Risk: MEDIUM to HIGH)
  • EPS applied to reach the current stock price (49): 2.111
• 10-Y DCF:
  • Good Scenario (20.0% – 22.0%): From 47.17 to 52.19 (Uncertainty Risk: MEDIUM to HIGH)
  • Base Scenario (17.0% – 19.0%): From 40.51 to 44.84 (Uncertainty Risk: VERY HIGH)
  • Bad Scenario (14.0% – 16.0%): From 34.79 to 38.51 (Uncertainty Risk: EXTREME)
  • Ugly Scenario (10.0% – 12.0%): From 28.39 to 31.43 (Uncertainty Risk: EXTREME)
  • At current price (49), based on RDCF, assumption of FCFF growth rate in the next 10 years is 20.8%.
• DDRM (Still in testing)
  • Total Projected Return: 9.20%
  • Hurdle Rate: 9.39%
  • To meet the hurdle rate, purchase below: 46.800
  • Uncertainty Risk: VERY HIGH
• In my opinion, fair value of DLADY range from 45 to 52. Uncertainty risk of fair value is from MEDIUM to HIGH.

Going Forward:

• I am positive with DLADY’s future:
  • Its solid fundamentals and strong branding position
  • Aggressive marketing and promotional activities
  • Robust demand of diary product in the long-term as Malaysia’s population is projected to reach 38 million people by 2040 from 30 million currently.
  • 25 Aug 2015 – To date, Dutch Lady had launched a new range of liquid milk products under the name of Dutch Lady PureFarm in an effort to refresh the brand.in addition, Dutch Lady have also strengthened our ready-to-drink products.
• Concern:
  • 25 Aug 2015 – Milk powder prices succumbed to multiple year-low in early-August due to the concerns of slowing demand from China and oversupply situation. However, the volatility persists as latest figures in mid-August show strong rebound of 7.2%-16.7% in a short period which we believe was driven by the 33% output cut by Fonterra, the world’s biggest milk supplier.
• DLADY valuation is less attractive, but it is a very defensive stock. I am willing to pay some premium for this.
• I will continue to hold and accumulate this stock for my kids.

At the time of writing, my family members owned shares of DLADY.

https://lcchong.wordpress.com/2015/11/18/dlady-fundamental-analysis-18-nov-2015/