Page 1 of 12. Fundamental Analysis for DUTCH LADY MILK INDUSTRIES BHD

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1 Page 1 of 12 Fundamental Analysis for DUTCH LADY MILK INDUSTRIES BHD Fundamental Analysis: 89% A+ Company Name: DUTCH LADY MILK INDUSTRIES BHD Board: Main Board Stock Code (Bursa): DLADY FBMKLCI: FALSE Bloomberg: DLM:MK Reuters: DBMS.KL Industry: CONSUMER PRODUCTS Stock Grade: Investment Grade Sub-Sector: FOOD AND BEVERAGE MFR Company Description: MANUFACTURE AND/OR DISTRIBUTION OF SWEETENED CONDENSED MILK;MILK POWDER;DAIRY PRODUCTS&FRUIT JUICE DRINKS. Date of Analysis: 23-Aug-11 Price: 18.8 Income Statement Analysis (21): Year over year, Dutch Lady Milk Industries Bhd has seen revenues remain relatively flat (691.8M to 71.6M), though the company was able to grow net income from 6.4M to 63.9M. A reduction in the percentage of sales devoted to cost of goods sold from 66.85% to 63.4% was a key component in the bottom line growth in the face of flat revenues. Balance Sheet Analysis (21): Dutch Lady Milk Industries Bhd uses little or no debt in its capital structure and may have less financial risk than the industry aggregate. Accounts Receivable are typical for the industry, with days worth of sales outstanding. Last, inventories seem to be well managed as the Inventory Processing Period is typical for the industry, at 53.7 days. Income Statement Analysis (Jun-11): Compared to the same quarter last year, Dutch Lady Milk Industries Bhd has been able to grow revenues from 185.8M to 2.9M. Most impressively, the company has been able to reduce the percentage of sales devoted to cost of goods sold from 64.78% to 61.6%. This was a driver that led to a bottom line growth from 18.9M to 27.8M. Balance Sheet Analysis (Jun-11): Dutch Lady Milk Industries Bhd uses little or no debt in its capital structure and may have less financial risk than the industry aggregate. Accounts Receivable are typical for the industry, with days worth of sales outstanding. Last, inventories seem to be well managed as the Inventory Processing Period is typical for the industry, at days.

2 Page 2 of 12 Shareholding Analysis: FRINT BEHEER IV BV & SKIM AMANAH SAHAM BUMIPUTERA are the major shareholders

3 Score Card - Fundamental Analysis Item W R S Remarks 1 - History of Consistently Increasing Earnings, Sales & Cash Flow 1.1. Sales Revenue & Net Income After Tax increasing in the past 5 years Net Cash from Operations increasing in the Ignore 28 past 5 years EPS increasing in the past 5 years Ignore Growing/consistent in revenue and net profit in the last 5 quarters The current quarter's EPS is up more than % from the same quarter the year before EPS increasing in the past 5 quarters Sustainable Competitive Advantage & Strong Future Growth Drivers 2.1. Strong brand, monopoly or barriers to entry Gross Profit Margin (> 4%) & Net Profit Margin (> 1%) Consistently high ROE > 15% Able to deliver double-digit growth in next 3-5 years ROIC > 15% Strong future growth drivers Everyone seems can't live without food Potential Risks Everyone seems can't live without food. 3 - Conservative Debt 3.1. Long term debt < 4 times Net Profit Debt/Equity Ratio < Current Ratio > Healthy Cash Flow 4.1. Working capital increase slower than sales Short & declining "Cash Conversion Cycle" Free Cash Flow / Sales > 5% Management and Institutional Investors are Holding/Buying Stock 5.1. Management and Institutional Investors are Holding/Buying Stock Overall Score 89%

4 Market Timing Buy Criteria Criteria 1. The current quarter's EPS is up more than 15% from the same quarter the year before. 2. Stock price breaks out of consolidation/dip on an uptrend. 3. Price is below Intrinsic Value (2%) 4. CU EY% > 6% (or at least more than FD rate) 5. CU DY% > 6% (or at least more than FD rate) Sell Criteria Criteria 1. EPS decreasing in the past 3-5 quarters 2. Stock price breaks out of long term uptrend. 3. Fundamental of business turns unattractive or bad 4. CU EY% < 6% (or at least more than FD rate) 5. Found a better opportunity to replace this stock Applicable Applicable Remarks Remarks

5 1 - History of Consistently Increasing Earnings, Sales & Cash Flow 1.1. Sales Revenue & Net Income After Tax increasing in the past 5 years. 8, 7, 6, 5, 4, 3, 2, 1, Total Revenue Net Income 1.2. Net Cash from Operations increasing in the past 5 years EPS increasing in the past 5 years Even if EPS growth is not trendy, but it is acceptable if 3-Y or 5-Y EPS growth rate is more than 15%

6 1.4. Growing/consistent in revenue and net profit in the last 5 quarters. 25, 2, 15, 1, 5, Jun-1 Sep-1 Dec-1 Mar-11 Jun-11 Turnover Net Profit 1.5. The current quarter's EPS is up more than 15% from the same quarter the year before. EPS Growth: 46.82% 1.6. EPS increasing in the past 5 quarters Jun-1 Sep-1 Dec-1 Mar-11 Jun-11 EPS

7 2 - Sustainable Competitive Advantage & Strong Future Growth Drivers 2.1. Strong brand, monopoly or barriers to entry 1. Does it have a monopoly situation? NO 2. Does it have a strong leading brand? STRONG 3. Does it have a high barriers to entry? HIGH 4. Does it have market leadership? STRONG 2.2. Gross Profit Margin (> 4%) & Net Profit Margin (> 1%) Gross Profit: Profit After Tax: 262,6 Sales Revenue: 71,588 63,887 Minority Interest: Gross Profit Margin: 37% Net Profit Margin: 9% 2.3. Consistently high ROE > 15% Able to deliver double-digit growth in next 3-5 years LT Growth Rate: 12.7

8 2.5. ROIC > 15% 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.%

9 3 - Conservative Debt 3.1. Long term debt < 4 times Net Profit Long Term Debt: Long Term Debt < 4 times Current Net Earnings (After Tax): Debt/Equity Ratio < 1 Debt/Equity Ratio: Current Ratio > 1 Current Ratio (MRQ): 2.2

10 4 - Healthy Cash Flow 4.1. Working capital increase slower than sales 2% 15% 1% 5% % -5% -1% -15% -2% -25% Revenue Growth YOY Working Capital Growth YOY 4.2. Short & declining "Cash Conversion Cycle" Cash Conversion Cycle Free Cash Flow / Sales > 5% Free Cash Flow/Sales: 12.71%

11 Market Timing 1. The current quarter's EPS is up more than 15% from the same quarter the year before. EPS Growth: 46.82% 3. Price is below Intrinsic Value (2%) Estimated IV: 2.7 to 23.5 Discount from IV: 9.2% 2.% Discounted Cash Flows: Dividend Discount: IV: 16.6 I take 1 years of dividend growth. IV is from 2.7 to Valuation by Estimated EPS and PE (Reuters): Valuation by Estimated EPS and PE (Self Estimation): Valuation by Price-to-book Ratio: 4. CU EY% > 6% (or at least more than FD rate) No estimation in Reuters 211: : : CU EY%: CU DY% > 6% (or at least more than FD rate) CU DY%: 5.5

12 Future Growth Drivers, Potential Risks and Analysts' Reports Reported Date Subject Details Type Created Date 8/19/211 Dutch Lady's earnings rise 46.8% to RM27.7m Dutch Lady Milk Industry reported a 46.8% increase in earnings to RM27.7m in the 2QFY11 from RM18.9m a year ago thanks to higher sales, a favourable sales mix and a weaker exchange rate on imported materials. Revenue rose 8.1% to RM2.9m from RM185.7m due to higher demand for liquid and powder milk. (Financial Daily) Future Growth Driver 8/19/211 7/14/211 YEE LEE CORP TERMINATES DISTRIBUTION AGREEMENT WITH DUTCH LADY & ENTERS INTO AGREEMENT WITH KELLOG ASIA YEE LEE CORPORTATION reported Jun 3, 211 that 1%- owned, YEE LEE TRADING CO sb had terminated its Distributorship Agreement with DUTCH LADY MILK INDUSTRIES effective Jun 3, 211. YEE LEE also announced that YEE LEE TRADING had entered into a Distribution Agreement with KELLOGG ASIA MARKETING inc to distribute their ready-to-eat cold cereal products within Malaysia for a period of 1 year commencing Jul 1, 211. Potential Risk 7/3/211