The impact negative of accounting records to Dutch Lady Milk Industries Bhd’s.

The company blamed it's poor results in recent years on it's pricing strategy.

On the other hand, Dutch Lady Milk Industries Berhad’s EBIT dived 15%, over the last year. We
think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock.
There’s no doubt that we learn most about debt from the balance sheet. But it is future earnings,
more than anything, that will determine Dutch Lady Milk Industries Berhad’s ability to maintain
a healthy balance sheet going forward. So if you want to see what the professionals think, you
might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper
profits; it needs cold hard cash. While Dutch Lady Milk Industries Berhad has net cash on its
balance sheet, it’s still worth taking a look at its ability to convert earnings before interest and tax
(EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash
balance. In the last three years, Dutch Lady Milk Industries Berhad’s free cash flow amounted to
48% of its EBIT, less than we’d expect. That weak cash conversion makes it more difficult to
handle indebtedness.

Higher raw material costs factor in Dutch Lady’s price increase.

Kenanga Research highlighted that Dutch Lady expects minimal impact from the price increase
to the child nutrition segment, particularly the premium brands and early life stage range of
products (0-12 months) due to the low price elasticity as compared to other products.“For the
beverages segment, the group expects demand to be sustained by the rising health awareness as
the average consumption of Malaysian is low at two servings per week versus two servings per
day recommended by World Health Organization (WHO), which suggest room for
improvement,” the research arm said.As for the raw material prices, Kenanga research noted that
whole milk powder (WMP) price has retreated from the year-high of US$5,000 per mt in the first
quarter of 2014 (1Q14) to below US$3,000 per mt level in September 2014 while the skimmed
milk powder (SMP) price has also followed suit. It said that management attributed the decline in
milk powder price to the high stock level in China, one of the biggest consumers in the world;
and the impaired business link to Russia on the back of economic sanctions.
Cost push factors weigh on Dutch Lady

Dutch Lady Milk Industries Bhd (Aug 23, RM59.20) Maintain market perform with a lower
target price of RM54.15: First half of financial year 2017 (1HFY17) net profit of RM64.2
million was below expectations, making up 44% of our full-year estimate. The negative
deviation was a result of stronger-than-expected impact from rising commodity prices, led by
unfavourable exchange rates. No dividend was declared this quarter, as expected. Year-on-year,
1HFY17 revenue of RM513.6 million improved 4%, possibly due to higher demand for dairy
products on Hari Raya festivities. However, gross profit contracted 5% to RM205.6 million as
higher foreign exchange (forex) as well as milk powder price averages dragged down gross
margin to 40%. Operating profit declined a further 11% to RM84.6 million, which we believe
was aggravated by heavier marketing expenses incurred to stimulate demand in a weaker
consumer environment. 1HFY17 net profit closed at RM64.2 million following a lower effective
tax rate of 24.3%.

Quarter-on-quarter, while second quarter (2QFY17) sales grew by 5% for the similar
abovementioned reasons, gross profit levels were flattish due to higher raw material prices in the
current quarter.

Dutch Lady 2Q net profit falls 44% due to slower infant formula market.

Dutch Lady Milk Industries Bhd’s net profit declined 44% to RM17.19 million for the second
quarter (2Q) ended June 30, 2019, from RM30.7 million a year ago. Revenue fell 4% to
RM243.61 million from RM254.25 million. The group, in a filing yesterday, attributed the
decline in performance to a fall in the infant and toddler formula market, although this was
partially offset by the liquid market category. The group also cited other factors including a
change in its category product mix, higher raw material prices and negative exchange rate
impact, which had affected earnings for the quarter.Net profit for the first half of the year fell
21% to RM51.09 million, from RM64.93 million a year earlier, while cumulative revenue fell
2.3% to RM508.59 million from RM520.36 million. While there is a decline in the infant and
toddler formula market, the group said the liquid milk market is seeing growth driven by
consumer pattern changes and innovations launched by Dutch Lady. The group said it will
continue to focus on growth going forward, by increasing the consumption of milk among
consumers.
References

Ahmad Naqib, (2019, August 28). Dutch Lady 2Q net profit falls 44% due to slower infant
formula market. https://www.theedgemarkets.com/article/dutch-lady-2q-net-profit-falls-44-due-
slower-infant-formula-market-0.

EMMOR, (2014, September 11). ‘Higher raw material costs factor in Dutch Lady’s price
increase’. https://www.theborneopost.com/2014/09/11/higher-raw-material-costs-factor-in-
dutch-ladys-price-increase/

Simply Wall St, (2020 Feb 6). These 4 Measures Indicate That Dutch Lady Milk Industries
Berhad (KLSE:DLADY) Is Using Debt Reasonably Well. https://simplywall.st/stocks/my/food-
beverage-tobacco/klse-dlady/dutch-lady-milk-industries-berhad-shares/news/should-we-worry-
about-dutch-lady-milk-industries-berhads-klsedlady-p-e-ratio/