0343 GMT [Dow Jones] Daibochi Plastic & Packaging Industries (8125.KU) +6.1% at MYR1.40 in active trade, may test recent high of MYR1.44 soon, on undemanding valuations and expectation Malaysian flexible packaging product maker to post strong earnings growth. "Our profit in the second, third and fourth quarter won't be worse than the first quarter," Daibochi Managing Director Lim Soo Koon told Dow Jones in a recent interview; adds, on annualized basis, this year's net profit will more than double its 2003 record profit of MYR9.7 million. "The stock may attract attention as it appears to be fundamentally sound," says dealer with local brokerage; notes stock now trading at undemanding P/E of less than 5X vs current market PER of 15X. (ECH)
KUALA LUMPUR (Dow Jones)--Despite the prevailing global economic slowdown, Malaysian flexible packaging product maker Daibochi Plastic & Packaging Industries Bhd. (8125.KU) is set to post a record net profit in the current year, helped by robust demand, a better product mix and lower raw material prices, an executive said.
"Our profit in the second, third and fourth quarter won't be worse than the first quarter," Daibochi Managing Director Lim Soo Koon told Dow Jones Newswires in a recent interview. The company is expected to release its second quarter results at the end of this month.
The company posted a net profit of MYR5.03 million on revenue of MYR55.84 million for the first quarter ended March 31, 2009, compared with MYR1.71 million on revenue of MYR50.72 million a year earlier.
Daibochi, which makes and sells flexible packaging materials including bags, pouches, liners and wrappers for food, beverage, fast moving consumer goods and the industrial sectors, recorded its highest annual profit of MYR9.7 million in 2003.
On an annualized basis, this year's net profit will more than double its 2003 record profit, Lim said. This means the stock is trading at undemanding valuations of 4.5 times price-earnings based on its price of MYR1.32 as at 0120 GMT compared with current market valuations of 15 times.
Lim attributed the expected better results for the year to a significant improvement in profit margins from a low of 3% in 2007 to 10% in the first quarter of this year. The profit margin rise is due to lower raw material costs, coupled with better product mix, he said.
The company, which has a market capitalization of close to MYR100 million, owns a plant on a 14-acre site in? Malacca and employs 530 people. It earned MYR8.2 million on revenue of MYR217.2 million in 2008 compared with MYR2.5 million on revenue of MYR65.4 million in 2007.
About 50% of its sales is to multinationals such as Nestle Malaysia Bhd (4707.KU), Pepsico Group, Colgate-Palmolive Malaysia Bhd, Cadbury Malaysia Bhd and Unilever Malaysia. Lim said demand for flexible packaging products, is expected to grow at a sustained rate of 10% a year given the rising preference for smaller packs of food, which need more packaging material. "But revenue may not grow in tandem (as the demand growth) because the price of the flexible products may rise or fall depending on the raw material costs," Lim added.
This is because the company has a clause with most of its clients, allowing for the rise or fall in costs to be passed through to clients.
Daibochi, according to Lim, is the market leader in the local flexible packaging industry, with a 30% share of the MYR600 million market. Its closest rival is TomyPak Holdings Bhd. (7285.KU), which has a 20% market share.
Lim said he is confident the group can raise export levels from the current 35% of its products, because its prices "are very competitive". He declined to elaborate.
In the next few years, Daibochi plans to set up sales and distribution offices that double as warehouses in Europe and hte U.S., where demand and the margins for flexible packaging materials are higher than Malaysia.
It currently has one such facility in Australia.
"Our strong rapport with multinationals over the last five years should help us secure more contracts in the global market .. we have had several referrals from the Malaysian operations," Lim said.
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