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IR Adviser :

[StarBiz] Myanmar JV expected to lift Daibochi profit

PETALING JAYA: Daibochi Plastic & Packaging’s (Daibochi)’s proposed Mynmar joint-venture is expected to boost its profitability once the project is approved although the company’s net gearing will rise.

CIMB Research said that assuming that the joint venture began operations early next year, it could boost Daibochi’s financial years 2017 and 2018 forecast earnings per share by between 18-22% while expanding the group’s reach in the region.

On Monday, Daibochi announced that it planned to acquire a 60% stake in a joint-venture company, Daibochi Packaging (Myanmar) Co Ltd (DPM)for US$6.8mil (RM29.2mil).

Myanmar’s Smart Pack Industrial Company Ltd (MSP) will inject its assets of plant and equipment into DPM and receive a 40% share of the venture and RM29.2mil in cash.

“In addition, the joint-venture should help boost the group’s pretax profit margin beyond the current 8%.

“This announcement is a positive surprise to us as it should help Daibochi expand its business in the Asean region and position the company to potentially become one of the largest flexible packaging companies in Myanmar, and also in the region,” the research house said in a report yesterday.

As for gearing, the research house projected that Daibochi’s net debt is set to rise from RM41mil to RM70.2mil after the acquisition and net gearing to go up from 0.22 times to 0.38 times.

However, it said this should not be a concern due its strong operational cash flow outlook, while DPM is targeted to pay dividends from the third year onwards.

Meanwhile, MIDF Research noted that since 70% of Daibochi’s export sales came from South-East Asia, the addition of Myanmar could boost export sales as the flexible packaging market size in Myanmar is estimated to grow 22% for the next five years.

“The acquisition is also justifiable by the lower operating costs in Myanmar, notably due to the lower costs of labour.

“While the net gearing could increase to 0.39 times, we think that is still manageable as DPM will be able to fund its future capital expenditure from a bigger internally generating fund,” it wrote in its report.

The contribution from the Myanmar operations could add 2.81sen to the research house’s FY17 earnings per share and 0.79 sen to its distribution per share assumption.

MIDF Research maintains its “neutral” recommendation with an unchanged target price of RM2.14, while CIMB Research keeps its “reduce” call on the stock, pending approval for the set-up.

“At a 2018 forecast 13 times the packaging sector target price to earnings, Daibochi’s share price is worth RM2.37, which offers only 3% upside from its current share price, if we include the potential contribution from the JV,” CIMB Research said.

Daibochi shares ended 2 sen higher at RM2.33 yesterday.

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