Fundamental Analysis for DUTCH LADY MILK INDUSTRIES BHD Date of Analysis: Company Name: 6-Jun-11 DUTCH LADY MILK INDUSTRIES BHD Board: Main Stock Code (Bursa): DLADY FBMKLCI: N Stock Code (Bloomberg): SIME:MK Sector: CONSUMER PRODUCTS Stock Code (Reuters): DLM:MK Industrial PE: 2.7 Price as of Analysis: 18.22 Rolling EPS: 1.12 Stock Grade Dividend Cash Cows Financial Statements: 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. 1 - History of Consistently Increasing Earnings, Sales & Cash Flow 1.1. Income Statement -> Sales Revenue & Net Income After Tax increasing in the past 4 years. 1.2. Cash Flows -> Net Cash from Operations increasing in the past 4 years. 1.3. Growing/consistent revenue in EPS, revenue and net profit in the last 4 quarters. 1.4. The current quarter's EPS is up more than 15% from the same quarter the year before. 2 - Sustainable Competitive Advantage 2.1. Strong brand, monopoly or barriers to entry 2.2. Gross Profit Margin (> 4%) & Net Profit Margin (> 1%) high & consistent 2.3. Consistently high ROE > 15% 3 - Strong Future Growth Drivers 3.1. Able to deliver double-digit growth in next 3-5 years 3.2. LT Growth Rate is positive 4 - Conservative Debt 4.1. Long term debt < 4 times Net Profit 4.2. Debt/Equity Ratio < 1 4.3. Current Ratio > 1 5 - Positive Accounting KPI & Ratios 5.1. DUE-D Basic > 7%
5.2. FQA Score > 6% 5.3. SWC Score > 7% p.a. 5.4. ROIC > 15% 6 - Healthy Cash Flow 6.1. Working capital increase slower than sales 6.2. Short & declining "Cash Conversion Cycle" 6.3. Free Cash Flow / Sales > 5% 7 - Management is Holding/Buying Stock 7.1. Is key management holding/buying large proportion of stock. 8 - Risks are Managed 8.1. Understand the risks of the company and how it is managed. 9 - Price is below Intrinsic Value 9.1. Price is below Intrinsic Value (Bonus: Price can double within 3 years) 1 - Stock Price Breaks out of Consolidation/Dip on an Uptrend 1.1. Stock price breaks out of consolidation/dip on an uptrend and above 2 and 5 moving averages on monthly chart.
1 - History of Consistently Increasing Earnings, Sales & Cash Flow 1.1. Income Statement -> Sales Revenue & Net Income After Tax increasing in the past 4 years. RM (') 26 27 28 29 21 TOTAL REVENUES 513,65 69,232 711,567 691,847 71,588 NET INCOME 43,65 47,255 42,647 6,4 63,887 8, 7, 6, 5, 4, 3, 2, 1, 1.8452381 1.626785714 3.253571429 26 27 28 29 21 TOTAL REVENUES NET INCOME 1.2. Cash Flows -> Net Cash from Operations increasing in the past 4 years. RM (') 26 27 28 29 21 NET CASH FROM 54,122 45,114 29,897 89,377 98,389 OPERATIONS 12, 1, 8, 6, NET CASH FROM OPERATIONS 4, 2, 26 27 28 29 21
1.3. Growing/consistent revenue in EPS, revenue and net profit in the last 4 quarters. 25 2 15 1 173111 188929 186715 161833 196643 Turnover Trend Net Profit Trend 5 3/1/21 6/1/21 9/1/21 12/1/21 3/1/211 5 4 3 2 1 EPS Trend 44.28 32.52 29.56 2.82 16.93 Mar-1 Jun-1 Sep-1 Dec-1 Mar-11 Quarter 1.4. The current quarter's EPS is up more than 15% from the same quarter the year before. EPS Growth: 36%
2 - Sustainable Competitive Advantage 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%) high & consistent 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% 4 35 3 25 2 15 1 5 ROE 21 22 23 24 25 26 27 28 29 21
3 - Strong Future Growth Drivers 3.1. Able to deliver double-digit growth in next 3-5 years Summary of analyst reports on company and industry projections: Summary of CEO message on future prospects: 3.2. LT Growth Rate is positive LT Growth Rate: 2.61
4 - Conservative Debt 4.1. Long term debt < 4 times Net Profit Long Term Debt: Long Term Debt < 4 times Current Net Earnings (After Tax):. 4.2. Debt/Equity Ratio < 1 Debt/Equity Ratio:.56 4.3. Current Ratio > 1 Current Ratio (MRQ): 2.2
5 - Positive Accounting KPI & Ratios 5.1. DUE-D Basic > 7% DUE-D Basic: 1% 5.2. FQA Score > 6% FQA Score: 1% 5.3. SWC Score > 7% p.a. SWC Score: 8.87% 5.4. ROIC > 15% 27 28 29 21 EBIT (1-Tax 65,26 58,154 82,31 89,221 rate%) Total Equity 127,3 161,6 18, 197,5 Short Term Debt 16,4 Long Term Debt Cash & Equiv 17,267 23,792 41,732 85,657 ROIC 51.43% 42.2% 59.33% 79.77% 9.% 8.% 7.% 6.% 5.% 4.% ROIC 3.% 2.% 1.%.% 27 28 29 21
6 - Healthy Cash Flow 6.1. Working capital increase slower than sales 27 28 29 21 Sales Revenue 69,232 711,567 691,847 71,588 Sales Growth YOY 17% -3% 3% Inventory 117,9 74,9 57,6 72,7 Accounts Receivable 99,191 125,282 94,5 75,865 Accounts Payable 143,748 122,731 92,188 99,986 Working Capital 73,343 77,451 59,912 48,579 Working Capital Growth YOY 5.6% -22.65% -18.92% Inventory Days 7.64 38.42 3.39 37.34 Days Receivable 59.43 1.8 1.63 3.25 Days Payable 86.12 62.96 48.64 51.36 Cash Conversion Cycle 43.94-23.45-16.62-1.76 2% 15% 1% 5% % -5% -1% -15% -2% -25% 27 28 29 Sales Growth YOY Working Capital Growth YOY 6.2. Short & declining "Cash Conversion Cycle" 5. 4. 3. 2. 1.. -1. -2. -3. 27 28 29 21 Cash Conversion Cycle 6.3. Free Cash Flow / Sales > 5% Free Cash Flow/Sales: 12.71%
7 - Management is Holding/Buying Stock 7.1. Is key management holding/buying large proportion of stock. Shareholding Analysis: FRINT BEHEER IV BV & SKIM AMANAH SAHAM BUMIPUTERA are the major shareholders
8 - Risks are Managed 8.1. Understand the risks of the company and how it is managed. Risk Management:
9 - Price is below Intrinsic Value 9.1. Price is below Intrinsic Value (Bonus: Price can double within 3 years) Valuation Method Discounted Cash Flow Growth Rate 5Y - 2.61 3Y - 32.29 19.37 24. 15.63/3 15.63/2 Dividend Discounted 17. 15. Remark PE 2.8 17.8 14.7 Sector Avg. PE PE Model 23.3 19.13 16.46 23.18 PEG.78.95 1.11.79 Estimated IV: From 19 To 23 Discount from IV: From 4.1% To 2.8% Discount from IV is not more than 2% Based on PEG, it is currently undervalued.
1 - Stock Price Breaks out of Consolidation/Dip on an Uptrend 1.1. Stock price breaks out of consolidation/dip on an uptrend and above 2 and 5 moving averages