AnalysisMalaysia

8 things I learned from the 2024 Dutch Lady Milk Industries AGM

Dutch Lady Milk Industries Berhad (DLMI) is a leading player in the Malaysian dairy industry, boasting a history of over six decades. Established in 1963 in Petaling Jaya, Selangor, the company has become a household name, nourishing generations of Malaysians with its dairy products under flagship brands like Dutch Lady, Friso Gold, and Debic.

As a subsidiary of the global dairy cooperative FrieslandCampina, which holds around 51% of its total shareholding, DLMI benefits from the expertise and resources of its parent company while maintaining a strong local presence and understanding of Malaysian consumers’ needs.

Here are eight things I learned from the 2024 DLMI annual general meeting.

1. In FY2023, DLMI achieved a record revenue of RM1.4 billion, up 7% year-on-year, driven by 3% volume growth. One notable point regarding the ‘other income’ is that it has quadrupled from RM4.6 million in 2022 to RM18.6 million in 2023 due to the forward hedge gain of the ringgit against foreign currency, which helped offset part of the operational impact of the weakening ringgit. Operating profit stands at RM100 million, marking an astonishing 77% increase from FY2022’s RM56.4 million. This growth is attributable to the company’s top-line growth and lower cost of dairy raw materials. Additionally, net profit increased significantly by 56.5%, reaching RM72.4 million compared to RM46.2 million in FY2022.

Source: Dutch Lady Milk Industries

2. Dividend per share for FY2023 is maintained at RM0.50; a total dividend of RM32 million was paid to shareholders, which has been the same since 2021. DLMI aims to balance internal cash flow, financing costs, and stable dividend payouts, retaining profits for its new Enstek manufacturing facility while maintaining the 2023 dividend level in 2024. For Q1 2024, the company approved an interim dividend payment of RM16 million.

3. DLMI’s RM540 million investment in a new IR4.0-enabled, green-field, halal manufacturing facility in Bandar Enstek is nearing completion. The new factory at Enstek is expected to be fully operational in 2024. The second development phase will involve constructing a dedicated distribution centre, with groundworks scheduled to be finished by H1 2025. Consequently, manufacturing operations in Petaling Jaya will cease in Q3 2024.

The new manufacturing facility will enhance control over production processes and provide more data on their processing variables. This will enable DLMI to streamline production further, gaining efficiency and ensuring quality and safety

There will also be a new R&D lab pilot plant that will support the company’s innovation efforts, potentially leading to new product launches and revenue streams. DLMI’s focus remains on its core portfolio of liquid milk and IFT (infant formula and toddler) products, with no current plans to enter the frozen products or farming sectors.

4. As of the end of 2023, the investment in capital work in progress stands at RM425.5 million, remaining in line with the CAPEX budget of RM540 million. This investment is expected to significantly increase production capacity, enabling the company to capture growth opportunities and meet growing consumer demand. The process of filling the total capacity will continue in the coming years, contingent on growth and innovations.

5. DLMI is facing inflationary pressures that are affecting its operational costs. Rising inflation, a weakening Malaysian ringgit, and increased business costs (e.g., labour, energy, taxes) pose challenges for DLMI in managing input costs and consumer affordability. Regarding the outlook for 2024, the company remains cautiously optimistic. DLMI aims to navigate through these challenges by focusing on driving consumer demand and leveraging its brand strength to maintain its sales.

6. DLMI’s remains Malaysia’s number one dairy company. According to NielsenIQ, the market value share in 2023 stands at 28.2%, an increase from 26.7% in 2022.

Source: Dutch Lady Milk Industries

7. Some shareholders asked about the company’s strategy to tap into the plant-based alternatives market. Managing director, Ramjeet Kaur Virik, responded that the company currently does not have a concrete plan for plant-based alternatives, and their primary focus is still on dairy products. However, the management did not avoid the possibility; they will assess if it fits their portfolio if opportunities arise.

8. DLMI is the largest purchaser of local fresh milk in Malaysia, as they have purchased more than 48 million litres of local fresh milk produced from 2011 to 2023. The company aims to source 100% of its fresh milk from local Malaysian farms by 2023, currently at 55%. They also actively support local farmers through programs like the Farmer2Farmer Programme to help local farmers improve the sustainability of milk supply by learning from Dutch dairy farmers.

The fifth perspective

DLMI continues to demonstrate its market dominance and leadership, underpinned by substantial brand equity. The company’s focus on dairy products and increasing consumption penetration remains steadfast.

Investors should monitor DLMI’s ability to capitalize on the potential growth opportunities unlocked by the new manufacturing facility at Enstek. However, risks such as inflationary pressures, supply chain complexities, and transition costs associated with the new facility could impact the company’s financials in the short term. Despite these challenges, DLMI’s robust financial performance and dividend policy make it a compelling investment opportunity for those seeking exposure to the resilient Malaysian dairy market.

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

Darren Yeo

Darren Yeo is an investment analyst at The Fifth Person, where he provides insightful analysis to help readers make more informed investment decisions. Before joining The Fifth Person, Darren gained two years of experience working at a bank. With a keen interest in finance, he is dedicated to continuous learning in the field of investing.

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