Better quarters ahead for Dutch Lady

KUCHING: Dutch Lady Milk Industries Bhd’s (Dutch Lady) results for the first half of financial year 2018 (1H18) yielded core earnings of RM65.6 million which are deemed broadly within estimates – making up 46 per cent of consensus full-year estimates.

Year on year (y-o-y), analysts at Kenanga Investment Bank Bhd (Kenangqa Research) reported that this was a slip of -4 per cent in core earnings and was due to flattish sales which translated to a decrease of 2 per cent y-o-y in gross profits to RM201.4 million. Gross margin was reported at 38.7 per cent a decrease of -1.3 points.

“This is possibly due to prolonged and unfavourable exposure to high milk powder prices,” said the research arm in a results note. “Nonetheless, operating margins improved by 4 per cent thanks to lower overheads from prior investment in operational enhancements.”

Quarter on quarter (q-o-q), Dutch Lady’s revenue dipped by 5 per cent to RM254.2 million, mostly due to weaker seasonality during the fasting period, higher commodity cost and unfavorable forex hedging.

Post results, Kenanga Research maintained its FY18 to 19E earnings assumptions for the group.

Looking forward, Kennaga Research believed that Dutch Lady’s future growth will be supported with better tailwinds such as new products and lower average costs that will translate to better quarters ahead.