D&L revenues seen growing 13% in 2024

D&L Industries Inc. will likely experience an increase of 13 percent in revenues this year on the back of volume growth and elevated demand for food ingredients and oleochemicals, the Maybank Investment Banking Group said on Wednesday.

The two product categories account for 85 percent of the firm’s total revenues.

Revenues from oleochemicals, or chemical compounds produced from fats and oils of vegetables and animal sources, could rise by 18 percent this year amid a government proposal to increase the biodiesel blend.

“Fifteen years after the supposed implementation of the Biofuels Act of 2006, the percentage of required Philippine bioethanol content remains at 2.0 percent blend (B2) versus the target minimum of 5.0 percent bioethanol (B5) in the gasoline mix,” the bank said.

Earlier this month, the Department of Energy issued a draft circular calling for an increase in biodiesel blend to B3 effective July 1, 2024. This will further increase to B4 by July 1, 2025, and to B5 effective July 1, 2026.

Maybank noted the proposal is expected to increase the firm’s oleochemical volume and revenue by 10 percent and 18 percent, respectively, but clarified that this would “not necessarily translate to higher margins.”

“Biodiesel is 9.0 percent of D&L’s total revenue and represents 24 percent of the commodity segment, with blended margins at the mid-single digit range,” it said.

Meanwhile, the company’s gross profit margin would likely rise to 17.3 percent in the fiscal year 2024 estimate following the improvement of its product mix, Maybank continued.

For the final quarter of 2023, D&L’s results “likely mirrored” its third-quarter performance, the bank said, supported by “improving gross margins from higher revenue contribution from HMSP (high-margin specialty products).”

However, pre-operating expenses from the company’s newly-opened Batangas plant were said to have tempered its growth.

In the third quarter of last year, D&L saw its net income decline by 33 percent to P552 million from P822 million, while consolidated revenues decreased by 27 percent to P8.49 billion from P11.58 billion.

Excluding the impact of Batangas plant operations, net income in the quarter ending September 2023 amounted to P866 million, only down 6.0 percent from last year’s P923 million.

Despite the drop in earnings, D&L President and Chief Executive Officer Alvin Lao remained optimistic that the new facility would be “a huge benefit to the company, as what we have seen multiple times over the past 60 years.”

On Wednesday, D&L shares were up by 2 centavos to P6.51 apiece.