{"id":322880,"date":"2023-04-28T02:46:04","date_gmt":"2023-04-27T18:46:04","guid":{"rendered":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/?p=322880"},"modified":"2023-04-28T02:46:06","modified_gmt":"2023-04-27T18:46:06","slug":"stock-in-focus-dl-industries-inc-dnl-28-apr-2023-by-rcbc-securities","status":"publish","type":"post","link":"https:\/\/www.pinoyinvestor.com\/smartinvestor\/stock-in-focus-dl-industries-inc-dnl-28-apr-2023-by-rcbc-securities\/","title":{"rendered":"Stock in Focus: D&L Industries Inc. (DNL) – 28 Apr 2023 by RCBC Securities"},"content":{"rendered":"\n

Summary of Broker’s Recommendation<\/h2>\n\n\n\n
Stock Code<\/strong><\/td>DNL<\/td><\/tr>
Company Name<\/strong><\/td>D&L Industries Inc.<\/td><\/tr>
Broker<\/strong><\/td>RCBC Securities<\/td><\/tr>
Opinion Issued on<\/strong><\/td>28 Apr 2023<\/td><\/tr>
Recommendation<\/strong><\/td>Buy<\/td><\/tr>
1-Year Target Price<\/strong><\/td>PHP 10.00<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
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We upgraded our target price (TP) for DNL from Php9.50 to Php10.00 based on our updated 2023 EPS forecast of Php0.57, wherein we applied the average of the stock\u2019s 2021 PE of 21.2x and our FY23F PE of 13.9x. Our revised TP implies a share price upside of 26.9% and a total return potential of 29.9%, which includes a 2023F dividend yield of 3.0%. Hence, we reiterate our BUY recommendation.<\/p>\n\n\n\n

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Analysis and Opinion<\/h2>\n\n\n\n

DNL\u2019s growth attributed to sales mix and margin recovery<\/strong><\/p>\n\n\n\n

DNL\u2019s typical sales mix is predominantly 60-70% High Margin Specialty Products (HMSP). This was overturned by the COVID-19 pandemic as consumers prioritized basic goods offered under the Low Margin Commodity Products (LMCP) segment, resulting in LMCP\u2019s contribution increasing from 31% to 49% over the last 3 years. This was detrimental for the firm as the margins of LMCP range 2-3x lower than HMSP (~4-10% vs. ~20-26%).<\/p>\n\n\n\n

Moreover, the elevated prices of commodity products pushed margins down near their lows, with LMCP sinking to 4.8% and HMSP dropping to 22.6% in FY22. However, we have been seeing an improvement in sales mix and margins as evidenced by the 30% growth yoy on its FY22 core net income to Php3.3bn, and surpassing its pre-pandemic record-high in FY18 by 4%. Sales mix ended at 49:51 for FY22 while 4Q22 at 47:53 both in favour of HMSP, which implies sales mix tilting back to HMSP. FY22 margins have been mostly improving qoq as input prices moderate, which may allow for better margins moving forward.<\/p>\n\n\n\n

Volume expansion supported bottomline<\/strong><\/p>\n\n\n\n

DNL remain steadfast as its unique approach of *fully passing on price fluctuations to its consumers protects them from price volatility to a certain extent. This makes the volume a more reliable way of assessing the company\u2019s growth, rather than revenues which will move relative to commodity price trends. FY22 volume increased 15% yoy, faster than the 11% growth recorded in FY21, supported by 14% and 28% growth in Food Ingredients and Oleochemicals divisions. This translated to higher income as they encompass the bulk of DNL\u2019s profits at 70%, contributing 29% and 41%, respectively.<\/p>\n\n\n\n

Batangas plant expected to commence operations by mid-2023<\/strong><\/p>\n\n\n\n

DNL booked a Php3.5bn capex in FY22, a majority of which was spent on the completion of the Batangas plant. Without any major projects in the pipeline after the plant, FY23 capex is expected to dwindle to ~Php500mn. The Batangas plant estimated to commence by mid-FY23 is expected to support the recovery of the HMSP back to the 70% contribution level and the export business to 40% contribution to sales (FY22: 31%) by way of increased volume output and one-stop-shop services in the next 5 years.<\/p>\n\n\n\n

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Check how many brokers recommend this stock<\/h2>\n\n\n\n
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All Stock Rankings<\/a><\/blockquote>