Dutch Lady Navigates Transition: Q1 2025 Shows Revenue Growth Amidst Profit Headwinds

The aroma of freshly brewed coffee might signal the start of a new day, but for investors in Malaysia’s beloved dairy giant, Dutch Lady Milk Industries Berhad (DLMI), it’s the quarterly report that truly sets the tone. DLMI, a household name synonymous with quality dairy products across Malaysia, has just released its unaudited financial results for the first quarter ended 31 March 2025.

The report paints a picture of resilient revenue growth, yet highlights the ongoing challenges impacting profitability as the company navigates significant strategic transitions. While revenue saw a healthy increase, the quarter’s profit figures dipped compared to the previous year, even as the company announced a promising interim dividend. Let’s dive into the details to understand the underlying currents shaping DLMI’s performance and future outlook.

Core Data Highlights: A Look at the Numbers

DLMI’s first quarter of 2025 showcases a mixed financial performance, with top-line growth being offset by higher costs and transition-related expenses. Here’s a breakdown of the key figures:

Revenue Continues Upward Trend

DLMI reported a revenue of RM373.4 million for the first quarter of 2025, marking a solid 2.9% increase compared to the RM362.8 million recorded in the same period last year. This growth was primarily fueled by robust sales in the company’s core liquid milk products, infant and toddler nutrition (IFT) products, strong momentum in its professional range, and contributions from newly launched innovations. It’s worth noting that this growth occurred despite the discontinuation of some non-core Dutch Lady products in the third quarter of 2024 as part of the transition to the new manufacturing facility.

Compared to the immediate preceding quarter (Q4 2024), revenue also saw a healthy 2.0% increase from RM366.0 million, driven by growing liquid milk sales and new product launches.

Profitability Faces Headwinds

Despite the revenue uplift, profitability metrics experienced a decline due to various factors, including ongoing transition costs and elevated raw material prices.

Operating Profit

Operating profit for the quarter stood at RM34.8 million, representing a 4.1% decrease from RM36.3 million in the first quarter of 2024. This figure includes

primarily related to the new distribution centre transition. In comparison, Q1 2024 included RM9.6 million in one-off costs, which encompassed accelerated depreciation and transition-related expenses. The accelerated depreciation ceased at the end of 2024 with the full transition of operations from the Petaling Jaya factory to the new Enstek facility.

On a like-for-like basis, excluding these one-off costs and accelerated depreciation, operating profit for Q1 2025 was RM43.1 million, a 6.1% decrease from RM45.9 million in Q1 2024. This decline was attributed to higher dairy and other raw material prices, as well as a negative revaluation of currency hedges as the Malaysian Ringgit strengthened against the USD.

Profit Before and After Taxation

Profit Before Taxation (PBT) for the quarter amounted to RM32.9 million, down from RM35.2 million in Q1 2024, mainly impacted by the lower operating profit. Consequently, Profit After Taxation (PAT) stood at RM25.0 million, a 6.1% decline compared to RM26.7 million in the same quarter last year.

Earnings Per Share (EPS)

Basic earnings per share also reflected the dip in profitability, coming in at 39.10 sen for Q1 2025, compared to 41.70 sen in Q1 2024.

Financial Position and Cash Flow

DLMI’s balance sheet remains robust, with total assets increasing to RM1,093.7 million as of 31 March 2025, up from RM1,073.7 million at the end of 2024. Total equity also grew to RM526.9 million from RM501.9 million, resulting in an improved net assets per share of RM8.23 (compared to RM7.84 at 31 December 2024).

Cash and cash equivalents saw a slight increase to RM49.7 million at the end of Q1 2025 from RM47.8 million at the end of 2024. However, cash generated from operating activities significantly decreased to RM4.9 million in Q1 2025 from RM12.7 million in the same period last year. This was largely offset by net cash generated from financing activities, which saw a positive inflow of RM14.6 million, primarily due to RM16.3 million in borrowings raised to support ongoing capital investments.

Risks and Prospects: Navigating the Future

DLMI acknowledges that the operating environment in Malaysia continues to be challenging. The company faces a confluence of factors that could impact its performance:

• Global and Domestic Uncertainties: Evolving geopolitical developments contribute to an unpredictable market.
• Foreign Exchange Volatility: The fluctuating Malaysian Ringgit against the USD directly impacts import costs for raw materials.
• Rising Commodity and Dairy Raw Material (DRM) Prices: These are expected to drive higher input costs and exert margin pressures throughout 2025.
• Regulatory Updates: Potential changes in regulations could affect cost structures and supply chains.

Despite these challenges, DLMI remains cautiously optimistic, driven by its strategic initiatives and the inherent strengths of its business:

• Strategic Investments: The successful completion of the new IR4.0 manufacturing facility in Bandar Enstek in late 2024 marks a significant milestone. The focus has now shifted to the construction of the new Distribution Centre in Enstek, expected to be operational by mid-2025. These investments are pivotal for operational excellence, supply chain resilience, and innovation.
• Cost Optimization: The company is actively focusing on optimizing costs and cash flow, implementing a “fit-for-purpose” organization to increase effectiveness and lower its fixed cost base.
• Brand Strength and Market Penetration: DLMI benefits from strong brand recognition and the increasing awareness of the nutritional value of milk among Malaysians, which supports sustained demand.
• Local Sourcing: The commitment to supporting local dairy farmers aims to enhance both the quantity and quality of locally produced fresh milk.
• Funding Strategy: DLMI is funding its Property, Plant & Equipment (PPE) investments through cash generated from operations, working capital, and a drawn inter-company loan facility (USD20.1 million drawn from a USD35 million facility).

The company’s strategic expansion is set to solidify its position as a leader in the Malaysian dairy industry, enabling innovations aligned with changing consumer preferences, such as the Dutch Lady Sip & Seal Packs.

Final Thoughts and Your Perspective

From a professional standpoint, DLMI’s Q1 2025 report highlights the delicate balance companies must strike between short-term profitability and long-term strategic investments. The current profit compression appears to be a calculated consequence of their significant capital expenditure into modernizing operations, which is essential for future competitiveness and sustainability. The focus on cost optimization and leveraging the new facilities will be critical in translating these investments into improved margins down the line.

What are your thoughts on DLMI’s strategic investments in the new manufacturing and distribution facilities? Do you believe these will provide the competitive edge needed to navigate the challenging economic landscape and drive future profitability? Share your views in the comments section below!