Maintain HOLD with new target price (TP) of RM56.20
- Dutch Lady’s 9M16 earnings of RM111.3m came in below expectation, making up only 68% of our full year forecast.
- Earnings fell 3.9% YTD mainly due to higher cost of sales and continued investments in support of the brand.
- Uptrend in milk prices putting pressure on company bottom line.
- We revised our FY16 and FY17 earnings forecast downwards to RM150.4m and RM163.7m respectively.
- Hold call retained with new target price of RM56.20. YTD earnings drop. Dutch Lady recorded a 9M16 revenue growth of 6.2% to RM776.1m due mainly to launch of the newly improved formula for Friso powdered milk which is specially targeted for children and introduction of Ready to Drink (RTD) UHT 125ml milk with Disney Marvel and Frozen character packaging. However, earnings dropped 3.9% YTD to RM111.3m from RM115.8m driven by i) higher costs of sales, and ii) greater advertising and promotion expenses in support of the brand as well as for new launches. This is reflected in the compression of EBIT margin by -2%.