FREE Stock in Focus: D&L Industries Inc. (DNL) – 7 March 2025 by AP Securities

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Summary of Broker’s Recommendation

Despite the earnings miss, our outlook for DNL remains bright due to the previously mentioned factors, and our broader optimism on consumer spending this year underpinned by moderating inflation and election spending. As such, we reiterate our BUY rating on DNL with a Target Price of P8.46/share.

Analysis and Opinion

Earnings miss estimates

DNL’s 2024 earnings miss consensus estimate of P2,603.33-Million by 10.15%, attributed to higher operating and interest expenses associated with its Batangas plant. Consequently, FY24 gross profit margin (GPM) also went down -1.7ppts YoY to 15.4% from 17.1% in the previous year which is associated with changes in product mix and higher raw materials cost (particularly coconut oil commodity price almost doubling YoY).

On a positive note, 2024 revenues outperformed consensus estimates of P38,297.20-Million underpinned by exports (+37%) and domestic (+16%) markets showing double-digit revenue growth. Ahead of profitability expectations in two years’ time, the Batangas plant recorded its first full year profit of P244-Million in 2024 that helped offset the incremental expenses.

Exports shows promising growth

While its revenues grew by +16% YoY, domestic market’s gross profit was down 4% YoY at P4.1-Billion from P4.0-Billion in 2023, with GPM standing at 14.1%. Export revenues, on the other hand, grew by +37% YoY and its gross profits surged by +37% YoY to P2.2-Billion from P1.6-Billion the previous year. Exports also had a higher blended GPM of 18.1%, primarily due to DNL’s exports being higher value-added products where they have a competitive advantage.

DNL’s bright future

Although fluctuations are still expected to occur due to potential unplanned improvements, the Batangas plant’s early profitability and its tax holidays has brought forward optimism into the next year. As such, we expect DNL to carry over most of its momentum from 4Q w024 with the Batangas plant contributing around 20% to 30% of total revenues.

Another key opportunity we see for DNL is the expansion of exports sales mix as they reported a growing demand which new customers shift from their regular suppliers to buying supplies from DNL. This is evident with sales mix’ exports expanding by 12.2% YoY. With these factors in mind, we expect robust earnings growth from DNL this year.

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