Meanwhile, KAF Equities Research noted that the group’s earnings, expected to grow at three-year CAGR of 16% between FY21-23F is driven by its integrated operations with Scientex and continuous research and development (R&D) to deliver innovative sustainable FPP solutions to its clients. KUALA LUMPUR: KAF Equities Research is keeping its buy call on Daibochi Bhd with a target price of RM2.90 premised on capacity expansion activities and its integrated operations with Scientex Bhd in providing flexible plastic packaging (FPP) solutions to domestic and overseas clients. As such, the research house has forecast the group’s top-line growth to grow at a three-year earnings compounded annual growth rate (CAGR) of 16% for financial year 2021 (FY21) and FY23 forecasts bolstered by increasing production capacity. “Valuation is pegged at a 15 times price-to-earnings ratio (PE) based on calender year 2021 forecast (CY21F) earnings per share which is in line with its long-term mean PE, ” it said. The group has allocated a total capital expenditure (capex) of RM100mil for FY20 and FY21. The capex would be used to add 21 new lines for printing, laminating and bagging which is projected to increase annual production capacity by 60%. This is supported by the growing demand for FPP domestically and in export markets. Meanwhile, KAF Equities Research noted that the group’s earnings, expected to grow at three-year CAGR of 16% between FY21-23F is driven by its integrated operations with Scientex and continuous research and development (R&D) to deliver innovative sustainable FPP solutions to its clients. “The efficiencies can be achieved via ongoing capacity expansions, reduced wastages and improvement in inventory controls. “Furthermore, Daibochi collaborates with local and international brands to adopt fully-recyclable laminates which is in line with global sustainability trends, ” it added. On the other hand, assuming Daibochi pays between 30% to 35% in dividends in FY21 and FY23F with projected dividend per share of 6 sen to 8 sen, it said this implies a dividend yield of 2% to 3% currently. The group has a dividend policy of paying not less than 30% of its earnings annually. As of FY20, KAF Equities Research said the group’s balance sheet looked healthy with a net gearing of 0.2 times, adding that the group’s management is comfortable with the balance sheet. It believes that the stock is undervalued as it is currently trading at 12 times PE which is a -0.5 standard deviation below its five year-forward mean PE of 15 times.
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