5 things you need to know about Daibochi Plastic & Packaging Industry Berhad

Daibochi Plastic & Packaging Industry Berhad (Bursa: DAIBOCI) is a classic example of finding an investment idea while grocery shopping in the supermarket. When you visit the supermarket, you will realise that many food products like your Cadbury chocolate bars and Milo sachets require packaging.

A company has to produce and manufacture all that packaging — and Daibochi is one of the leading flexible packaging manufacturers in Malaysia and Southeast Asia.

Here are five things I discovered about Daibochi Plastic & Packaging Industry Berhad:

1. Consistent growth in revenue and profit

Daibochi’s revenue has grown from RM71.9 million in 1999 to RM345 million in 2015.

Likewise, net profit has grown nearly fivefold from RM5.1 million in 1999 to RM23.4 million in 2015.

The growth is contributed from food manufacturers increasingly switching from rigid packaging to flexible packaging. Diabochi’s latest nine-month revenue and net profit for FY2016 are RM280.8 million and RM18.6 million respectively.

2. Increases in oil and raw material costs will affect the company

Flexible packaging is the use of plastic film to package food. Plastic is a by-product of oil which is why any increase in oil prices will affect the company’s bottom-line.

From 2004 to 2008, the company was adversely affected by higher oil and raw material costs. During that period, Daibochi’s gross margins dropped to 6-11 compared to the 14-15% margins we normally see over the last 17 years. This explains the drop in net profit from 2004 to 2008 in the net profit chart you saw earlier.

3. 80% of their customers are multi-national companies

Daibochi’s customers are mainly from the food and beverage industry which accounts 90% of total sales. 80% of their customers are MNCs like Nestlé, Mondelez International, Kimberley Clark, Unilever, Colgate-Palmolive, etc.

Daibochi is the largest supplier of Milo packaging in Southeast Asia, the sole supplier to Nestlé’s Chembong Factory in Malaysia, and supplier of more than 90% of Cadbury’s flexible packaging in Malaysia. Daibochi is also a major supplier to Mondelez International, Dutch Lady, Mamee and Power Root in Malaysia.

4. Export sales are increasing

In 2009, domestic sales comprised 60% of total revenue.

Fast forward to 2016, Daibochi no longer relies as heavily on domestic sales as it now contributes 46% of total revenue.

Moving forward, Daibochi is likely to increase their export sales as they recently set up a joint venture in Myanmar to expand their flexible packaging production and supply in the country.

5. Dividends are growing

Daibochi has been paying a dividend for the past 12 years. Despite the subprime crisis in 2008/09, the company was still able to pay a dividend and then increased the dividend substantially after the crisis blew over.

This speaks volumes about the company’s financial strength and dominance in the industry where they’re able to maintain profitability even during tough times.

Victor Chng is an equity investor and co-founder of The Fifth Person. His investment articles have been published on The Business Times BTInvest section and Business Insider. He has also been featured multiple times on national radio on 938LIVE for his views and opinions on how to invest successfully in the stock market. Victor is also the co-author of Value Investing in Growth Companies published by Wiley, Inc. The book can be found in all major book stores worldwide and on Amazon.com, Barnes & Noble and Apple's iBooks. On a personal note, Victor represented Singapore in the 2008 TAFISA World Games in Busan, South Korea and was the 2008 IFMA World Muay Thai Championships bronze medalist, kicking some serious ass along the way.

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