D&L delays commissioning of Batangas plant due to 'supply chain' issues
The food ingredients giant D&L Industries [DNL 8.00] said that “COVID”, “port congestion”, “supply chain disruptions”, and a “longer-than expected” permitting process, have all conspired to cause it to delay the start of commercial operations for its Natura Aeropack Plant from May of this year until January of 2023.
DNL’s President and CEO, Alvin Lao, said that DNL’s existing capacity is “still sufficient to serve requirements in the near term”, and that the delay will have “no material impact on current operations”.
The plant is intended to manufacture coconut oleochemicals for use in personal care products, and DNL hopes that it will also help get DNL closer to the end consumer, as the new plant allows DNL the ability to pack products into a finished state (instead of just exporting material in bulk).
DNL is very bullish coconut, saying that there is “strong demand for high value coconut-based products in the export market”.
MB BOTTOM-LINE
Every step that a company can take toward either the source (raw materials) or the consumer (the person who buys the finished product) allows that company to capture and control a larger potential slice of the overall revenue stream for a particular product.
This plant, once complete, will allow DNL to get closer to the consumer.
Instead of just shipping out the coconut products in bulk to some middle-man company in the product life-cycle chain, DNL is able to pack the coconut products and perform that additional value-added service as part of its offering to clients.
A classic “cut-out-the-middle-man” type of move. Now, while Mr. Lao says that it has enough existing capacity to meet its customers’ needs, and that the delay will have no material impact on current operations, I think it’s important to parse that out a bit.
For shareholders, this delay is probably material from a revenue perspective.
If the plant were starting operations in May, the company (and shareholders) would be benefitting from the plant’s income from that time until the end of the year.
So while the delay might not cause any problems with “current operations” (clever wording), there’s definitely going to be a change to DNL’s projected revenue this year.
It’s not like they planned to start commercial operations in May and then do nothing with the plant for the rest of the year.
That’s 9 months of operations lost that shareholders won’t get back.
It’s also a little concerning to see such a gnarly mix of reasons for the delay.
I like DNL, and I think this is a fascinating company, but it makes me nervous to see delays that boil down to “because COVID... and some other stuff”.
On the one hand, how could a company as large as DNL be this surprised/impacted by permitting delays?
On the other hand, though, it’s the Philippines and I totally get it.
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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