Fundamental Analysis for DUTCH LADY MILK INDUSTRIES BHD

Transcription

1 Page 1 of 8 Fundamental Analysis for DUTCH LADY MILK INDUSTRIES BHD Company Name: DUTCH LADY MILK INDUSTRIES BHD Board: Main Board Stock Code (Bursa): DLADY FBMKLCI: FALSE Bloomberg: DLM:MK Reuters: DBMS.KL Industry: Sub-Sector: CONSUMER PRODUCTS FOOD AND BEVERAGE MFR Company Description: MANUFACTURE AND/OR DISTRIBUTION OF SWEETENED CONDENSED MILK;MILK POWDER;DAIRY PRODUCTS&FRUIT JUICE DRINKS. Date of Analysis: 26-Feb-12 Price: 25.8 Financial Year: Investment Strategy: /12/2010 Value Investing Position Strategy: Lump Sum + Top Up Averaging Down Method: Dollar Cost/Value Stock Grade: Investment Grade Averaging Management Bear Case Profitability Economic Moat Financial Health Profitability 5 Economic Moa 5 Financial Heal 5 Growth 4 Bear Case 5 Management 5 Growth

2 Fundamental Analysis - Value Investing All figures in millions of Ringgit Malaysia except per share values and ratio Measures Profitability Consistently increasing sales revenue /12/ I R Comments Consistently increasing Net Income After Tax Consistently increasing EPS Consistently increasing revenue in the last 5 quarters. Consistently increasing net profit in the last 5 quarters. Consistently increasing EPS in the last 5 quarters The current quarter's EPS 15% from the same quarter the year before. Dec-10 Mar-11 Jun-11 Sep-11 Dec %

3 Economic Moat Consistently increasing Net Cash from Operations Consistently high ROE > 15% Consistently ROTA > 1.2% ROIC > 15% Working capital increase slower than sales Short & declining "Cash Conversion Cycle" Free Cash Flow / Sales > 5% Gross Profit Margin (> 40%) Net Profit Margin (> 10%) /12/ % 11% 10% 15% 23% 36% 37% 26% 34% 32% 4.53% 8.03% 7.32% 9.51% 13.58% 20.37% 16.04% 14.66% 21.50% 20.78% 9.28% 4.99% 10.02% 14.66% 22.46% 34.94% 36.67% 26.02% 32.80% 31.75% N/A 20% 10% -17% -14% 8% 1% 41% 0% 32% % 3% 9% 4% 7% 9% 5% 2% 9% 13% 29.96% 33.88% 35.85% 32.47% 33.95% 37.39% 30.03% 25.98% 33.15% 36.96% 3% 4% 4% 5% 6% 8% 8% 6% 9% 9% Gross profit is increasing Net profit margin is increasing Strong brand, monopoly or barriers to entry Monopoly Situation: Strong Leading Brand: High Barriers to Entry: Market Leadership: NO Very Strong Very High Very Strong

4 Financial Health Long term debt < 4 times Net Profit Debt/Equity Ratio < 1 Current Ratio > /12/ Growth Quality of Historical Growth 2001/12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/31 Throughout the years, all of the growth rates are positive. However, in the 2-3 years, the growth slowed down slightly, but the growth still valid. 2009/12/ /12/31 - Revenue Growth: - Operating Income Growth: - EPS Growth: - Net Cash From Operation Growth: N/A 9% 4% 13% 9% 12% 19% 17% -3% 3% Avg: 9% σ: 7% N/A -19% 76% 28% 38% 58% 8% -11% 41% 9% Avg: 25% σ: 31% N/A -68% 0% 29% 35% 60% 10% -9% 40% 6% Avg: 12% σ: 37% N/A -2% 103% -42% 64% 38% -17% -34% 199% 10% Strong future growth drivers From BTimes: Avg: 36% σ: 77% Dutch Lady managing director Bas van den Berg attributed its results to strong sales, creative marketing campaigns and the programme change introduced to Dutch Lady Malaysia in "What we did in the change programme, called Passion for Blue (PfB), was to re-strategise both our business focus and company development. "PfB is unique in that it was innovatively designed to create and build a winning business culture within Dutch Lady Malaysia in order to propel the company to greater heights. "It is an all-encompassing programme that focuses on strategy and people development. In PfB, we develop business strategies, at the same time re-look at strengthening our staff via training programmes besides employing the right talents," said van den Berg. In recent years, Dutch Lady's focus had been on product innovation and streamlining of its dairy range. Increasing consumer demand for quality, nutritious milk brands also contributed to record sales, he said.

5 The Bear Case Potential Risks For 2012, the general uncertainty over the world s economy may impact consumer spending. Despite the high dairy raw material prices, the Board of Directors of the Company is relatively optimistic on its 2012 outlook given the strength of its Dutch Lady brand and strong market position. Management Management and Institutional Investors are FRINT BEHEER IV BV & SKIM AMANAH SAHAM BUMIPUTERA are the major shareholders Holding/Buying Stock Compensation - Pay for performance Reasonable compensation Red Flags Character Running the business I - Importance; R - Rating Were executives given loans that were subsequently forgiven? Do executives get perks for by the company that they should really be paying for themselves? Does management hog most of stock options granted in a given year, or do Rank-and-File employees share in the wealth? Does management use stock options excessively? If a founder or large owner is still involved in the company, does he or she also get a big stock option grant each year? Do executives have some skin in the game? Does management use its position to enrich friends and relatives? Is the board of directors stacked with management's family members or former managers? Is management candid about its mistakes? How promotional is management? Can the CEO retain high-quality talent? Does management make tough decisions that hurt results, but give a more honest picture of the company? Performance Follow-through Candor Self-confidence Flexibility Good rmal Bad Important Neutral t Important

6 Market Timing Criteria - Value Investing Buy Criteria Criteria 1. The current quarter's EPS is up more than 15% from the same quarter the year before. 2. Price is below DCF Intrinsic Value 3. Current EY% or Rolling 4Q EY% > 6% 4. Current DY% or Rolling 4Q DY% > 6% 5. Stock price breaks out of consolidation/dip on an uptrend. 6. Comparison of P/B ratio (for Financial stocks only) 7. Company owner, EPF, Khazanah and PNB heavily buying VI Remarks Sell Criteria Criteria 1. Current EY% or Rolling 4Q EY% < 6% for more than 2 years 2. Current DY% or Rolling 4Q DY% < 6% for more than 2 years 3. Quarterly EPS drop for 5 consecutive months 4. Fundamental of business turns unattractive or 5. Found a better opportunity to replace this stock 6. The stock drops near to my average cost or hit my stop loss 7. Long term trend changed from bullish to bearish 8. Company owner, EPF, Khazanah and PNB heavily selling. 9. Did I make a mistake? 10. Has the stock risen too far from its intrinsic value? VI Remarks Important Neutral t Important Ignore

7 Valuation - Value Investing 1. Discounted Cash Flow Valuation 3-Y 5-Y 10-Y Fair Value Actual M.O.S. -4% 2% 11% Buy Under Selection P 3-Y: Fast-growing company; operates in highly competitive, low margin industry 5-Y: Solid company; operates with advantage such as strong marketing channels, recognizable brand name, or regulatory advantage 10-Y: Outstanding growth company; operates with very high barriers to entry, dominant market position or prospects 2. Price-to-book Ratio Valuation by Price-to-book Ratio: Current EY% or Rolling 4Q EY% > 6% CU EY%: 3.87 Rolling 4Q EY%: Current DY% or Rolling 4Q DY% > 6% CU DY%: 3.68 Rolling 4Q DY%: 1.84

8 Discounted Cash Flows Valuation Shares Out. M. O. S. Growth % Market risk premium 14 Risk free rate Discount % Terminal % 2010 FCF Excess Cash Intangibles Assets Intangibles% add to DCF Decay Rate (Yr4E-Yr7E) Extra Decay (Yr8E-Yr10E) Default Value % 8% 7.73% 3.43% 9% 2% % 8% 15% Custom Value 0.00% Projection of Future Free Cash Flow Yearly Growth % Y Valuation 5-Y Valuation 10-Y Valuation Discounted Perpetuity Value 1, Discounted Perpetuity Value 1, Discounted Perpetuity Value Present Value 1, Present Value 1, Present Value 1, Shares Outstanding Shares Outstanding Shares Outstanding Fair Value Fair Value Fair Value Desired M.O.S. 20% Desired M.O.S. 20% Desired M.O.S. 20% Buy Under Buy Under Buy Under Current Price 25.8 Current Price 25.8 Current Price 25.8 Actual M.O.S. -4% Actual M.O.S. 2% Actual M.O.S. 11%