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7 things I learned from the 2020 Dutch Lady Malaysia AGM

Established in 1963, Dutch Lady Milk Industries Berhad (Dutch Lady Malaysia) manufactures, distributes, and sells dairy products in Malaysia. It is one of the leading established dairy companies in the country. The brand is backed by over 140 years of Dutch dairy heritage from its holding company, Royal FrieslandCampina N.V.

Its product portfolio includes powdered milk, liquid milk, and yogurt. It aims to nourish and bring value to Malaysian families through its affordable dairy products. I was interested to know how the company aims to grow further in a country where Malaysians generally do not consume milk.

Here are seven things I learned from the 2020 Dutch Lady Malaysia AGM:

1. Dutch Lady Malaysia registered only a 1.7% year-on-year increase in its revenue to RM1.1 billion in 2019 despite a 6.2% rise in volume growth to 122 kilotonnes. This is due to its pricing strategy to make milk affordable and drive long-term per-capita milk consumption. In general, Dutch Lady Malaysia’s products are affordably priced. For example, they introduced the RM1 mini milk pack in sundry shops, which is the cheapest standalone pack available in the market. It wants more consumers onboard to secure its long-term growth. Any subsequent increase in product prices will have to be done carefully to avoid losing the consumers.

2. Net profit excluding extraordinary items dropped 16.1% y-o-y to RM99.1 million in 2019 as global dairy raw material prices rose by 4% in 2019. Dairy raw materials are commodities and their prices are volatile as mentioned by Dutch Lady’s managing director Tarang Gupta. The company’s profitability was further impacted when the ringgit weakened by 3% against the U.S. dollar, the currency used to transact dairy raw materials.

3. Gupta shared that Dutch Lady Malaysia owns a dominant dairy market share in Malaysia at 29.3% in May 2020 compared to a year ago at 26.9%. Its closest competitor has a 13.9% market share. The overall industrial powdered milk segment shrank by 6.5% in 2019 while the beverage segment grew marginally by 1.2% over the same period.Powdered milk for children has a higher profit margin than liquid milk. The company experienced the same changes in its product sales and posted a lower net profit in 2019 compared to 2018.

4. A shareholder asked why Dutch Lady’s dividend per share (DPS) dropped from RM2.00 in 2018 to RM1.00 in 2019. To be fair to Dutch Lady Malaysia, it maintained its ordinary DPS at RM1.00 in 2019. The drop in DPS was caused Dutch Lady paying a special DPS of RM1.00 in 2018. The company also cut its first interim ordinary dividend per share to 40 sen in 2020 from 50 sen in 2019. Gupta shared that extra cash is reserved to finance the company’s future expansion plans and to absorb potential COVID-19 impacts.

5. In March 2020, Dutch Lady Malaysia announced that it would acquire a piece of land within the industrial park of Bandar Enstek, Negeri Sembilan, which is a 45-minute drive from Kuala Lumpur, at RM56.8 million. The proposed acquisition is estimated to be completed by the end of 2020. Further details were not shared as the construction plans are yet to be finalised. The utilisation rate of the existing plant stands at 75%. It is worth noting that the leasehold land, comprising factory buildings, office complex, and warehouse located at Petaling Jaya, Selangor will expire in 2059. It cannot choose to renew the lease, which is probably what drove the company to look for new industrial land in my opinion.

6. According to Gupta, about 15% of the company’s portfolio comprises flavoured ready-to-drink milk and is impacted by the sugar tax. He responded to Minority Shareholder Watch Group that it had passed on the cost increase to customers. The flavoured milk was reformulated to bring the sugar level below the taxable threshold of seven grams of sugar per 100 millilitres of milk-based beverage and will be released into the market by August 2020.

7. Dutch Lady Malaysia has improved product transparency by launching TrackEasy for its Friso Gold products. This new feature allows consumers to trace the milk production from ‘grass to glass’ by scanning the QR code provided on the packaging. The management did not mention any disruption regarding the distribution and supply of its products to customers during the Movement Control Order period. All of its employees were tested for COVID-19 before they returned to work.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

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Shak Chee Hoi

Chee Hoi is an investor and research analyst at The Fifth Person. He was previously involved in wildlife conservation work with a non-governmental organisation as well as sustainability consultancy work. He personally believes in impacting society and the environment for the greater good.

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