Dutch Lady Milk Industries Bhd.

Just realised during this early June, that DLady is such a good company which suit my long-term-growth strategy. Not much research had been done before I decided to take it into my portfolio .

Bought it at RM47.20，a price equivalent to PE ~24，and net DY of 5.5%.... which i think is quite reasonable though not very attractive.


 x x x

company's financial performance review:

(click here for full view)

summary:

• Revenue CAGR stood ~ 9%p.a. for the past ten years. 
• Ten years profit CAGR at ~23%.  
• an up-trend of profit margin and ROE.
• continuous growth of dividend.

The growth of revenue had slow down a bit in past five years, but the profit growth rate still stood above 20%p.a., due to the continuous improvement on margin.

 x x x


The company had just completed its expansion plan which could boost its UHT milk capacity by 50%. There's still many sub-segment of milk products market that DLady is yet to venture into. These markets provide sustainability of its long-term growth.

I'm quite optimistic about the company's new product -- DutchLady Chocolate Drink, which had just been launched last year. I believe it had a potential to gain a significant share in the chocolate drink market.


 x x x

Besides its long-term growth potential, DLady poses some attractive criteria:

• It's the leader in its market (liquid milk and milk powder) -- had a market share higher than Nestle。
• Focus on simple product -- selling liquid milk, and other milk products.
• Focus on single market -- Malaysia and Singapore, that's all.
• High profitability -- ROE had been >30% for many years, and now up to ~50%.
• Strong cashflow -- which translated into good dividend record.
• Huge cash, zero debt.

 x x x


My expectation on DLady:

• Continue to be a Leader, and further increase its share in milk product market.
• Revenue grows at a 7~10% rate, while profit growth rate stand > 10% p.a.
• Dividend maintained at same level as 2012. (RM2.60 per share)
• (further reading: The sustainability of DLady's "high" dividend.)

Expected return on investment, ~15% p.a.
Expected period of investment, 5~10 years.


now DLady weight about 7% in my portfolio.

.

The sustainability of DLady's "high" dividend.

Dutch Lady had paid a high dividend of RM2.60 per share in 2012. This is more than 3-folded as compared to 2011. The sudden jump of dividend, which is much higher than its EPS (RM1.93), had caused suspicion about its sustainability.

For this matter, I think we could get some clues from the company's history -- a giant leap of dividend occurred once in year 2004 too, and here's a summary of what happened then:

• 2004, DLady declared dividends that was 80% higher than its profit, and that dividend was more than 4-folded compared to 2003.
• 2005, the company able to increase the dividend, to a level that was 50% higher than its profit on the same year.
• 2006~2007, same level of dividend, while the company's profit catching up.
• 2008, failed to maintain the dividend rate due to sharp hike of raw material price.
• 2009, restored dividend to previous years' level, and maintain it during 2010~2011.

x x x

During years 2006~2011，the dividend of DLady didn't increase although its profit had experienced a strong growth, hence the accumulation of huge cash in the company. So in 2012, we saw the company able to paid a dividend much higher than its earnings, again.

In the coming years, I'm quite optimistic that DLady will be able to maintain its dividend at current level (RM2.60 per share), due to its potential of continuous profit growth, its strong cashflow, and the huge cash reserves.

So, for the current share price, I'm expecting a net dividend yield of >5%.


 x x x

Historical data:

.





.