KUCHING: Indonesia and Myanmar are set to be two key growth nodes for Daibochi Plastic and Packaging Industry Bhd (Daibochi).
MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) expects Indonesia to contribute seven per cent to Daibochi’s sales in financial year 2018 (FY18).
“We are pleasantly surprise to find out that Daibochi’s inroad to Indonesia is going well,” it said yesterday, adding that it is securing new clients and orders in Southeast Asia’s biggest consumer market faster than expected.
“It has started production for a customer and is currently running trial production for another FMCG customer. More importantly, it is close to securing its third new food and beverage MNC customer in Indonesia, which could see a more sizeable contract.”
Jobs from the two new Indonesian customers are expected to start in the second half of 2017 (2HFY17). All in, we estimate that these three clients could contribute seven per cent to its topline in FY18.”
Meanwhile, Daibochi’s progress in Myanmar on schedule, working closely with Myanmar Smart Pack Industrial Co Ltd (MSP) in closing in operational gaps.
“Both parties are at a mature stage of preparation for an official commencement targeted in June including getting orders from new customers there,” MIDF Research added.
“We are maintaining our estimates of five per cent and 20 per cent contributions from Myanmar to Daibochi’s FY17 and FY18 PBT respectively. We are positive on this venture as Daibochi will be able serve its more price sensitive customers through the lower cost the Myanmar unit can offer.”
The research firm said Daibochi can also tap into Myanmar’s labour resources more directly through its 60 per cent-owned subsidiary.
Its margins are expected to stabilise in coming quarters. Daibochi will pass on the costs of higher raw material price, which increased by double digit in the past few months, to its major customers under the agreed pricing mechanism.
Moreover, raw material prices and US dollar-ringgit exchange rates have stabilised. The management had reduced operating costs by 5.4 per cent during the first quarter through better wastage control and operational efficiency.
“We are positive on potential growth from Indonesia and Myanmar. We expect profit growth of 20 per cent in FY18 driven by Indonesia and Myanmar, which are high-growth markets that the group was previously absent from,” it added.
“Daibochi could also enjoy tax breaks from its Myanmar investment for up to five years. Besides that, we believe that the cost pressure it encountered last year should be easing as management resolves its labour resources issue.
“Going forward, management will continue its operational efficiency enhancement efforts. All factors considered, we upgrade the stock recommendation to buy.”
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