TOMYPAK (7285) : Tomypak Holdings - Slow road to recovery?
Target RM1.37 (Stock Rating: HOLD)
Tomypak’s 3Q14 results were in line with our expectation, with the annualised 9MFY14 net profit coming in at 101% of our full-year forecast. We maintain our EPS forecasts but until Tomypak’s quarterly earnings show continued signs of recovery, we are switching our valuation basis from earnings (previously 7.8x P/E, 30% discount to Daibochi P/E target ) to asset-based. As a result, our target price rises to RM1.37, now pegged at 1.3x 12-months average P/BV. We upgrade the stock from Reduce to Hold as share price downside looks limited with floor support at RM1.30, which is the acquisition cost price of the new major shareholder. For exposure in the packaging sector, we prefer Thong Guan Industries.
9MFY14 net profit down 59% yoy
Tomypak’s 9MFY14 revenue was down 7% yoy, mainly due to declining domestic revenue as export sales growth was flat. However, 9MFY14 net profit was down 59% yoy, mainly due to higher raw material and electricity costs. The company has been facing problems managing its operating costs since mid-2012. As such, we were relieved to see Tomypak’s 3Q14 EBITDA margin bounce back to 12.4% compared to only 8.4% in 2Q14. We need the company to show operations are on the road to a sustainable recovery. The interim DPS was 1 sen, in line with our expectation. YTD, a 4 sen DPS was declared.
Expansion plans
In late Oct, the company proposed to acquire 10.4 acres of industrial land in Kulai, Johor for RM11.7m. The land will be used for expanding its operations. Funding is not an issue. Balance sheet was RM18m net debt, or only 0.2x net gearing as at end-Sep. We believe that this land purchase is long overdue as the operations at its existing factory in Johor Baru (four acres) were already running out of space a few years ago.
New shareholder is already in
In Oct, Yong Kwet On emerged as the new major shareholder, owning a 25.4% equity stake in Tomypak. Yong has no major experience in the packaging industry, but was involved in the ICT industry over the past thirty years. So far, there have been no signs of what Yong wants to do with Tomypak. We are also surprised that Yong has yet to ask for a board seat in the company.
Source: CIMB Daybreak - 17 November 2014
Target RM1.37 (Stock Rating: HOLD)
Tomypak’s 3Q14 results were in line with our expectation, with the annualised 9MFY14 net profit coming in at 101% of our full-year forecast. We maintain our EPS forecasts but until Tomypak’s quarterly earnings show continued signs of recovery, we are switching our valuation basis from earnings (previously 7.8x P/E, 30% discount to Daibochi P/E target ) to asset-based. As a result, our target price rises to RM1.37, now pegged at 1.3x 12-months average P/BV. We upgrade the stock from Reduce to Hold as share price downside looks limited with floor support at RM1.30, which is the acquisition cost price of the new major shareholder. For exposure in the packaging sector, we prefer Thong Guan Industries.
9MFY14 net profit down 59% yoy
Tomypak’s 9MFY14 revenue was down 7% yoy, mainly due to declining domestic revenue as export sales growth was flat. However, 9MFY14 net profit was down 59% yoy, mainly due to higher raw material and electricity costs. The company has been facing problems managing its operating costs since mid-2012. As such, we were relieved to see Tomypak’s 3Q14 EBITDA margin bounce back to 12.4% compared to only 8.4% in 2Q14. We need the company to show operations are on the road to a sustainable recovery. The interim DPS was 1 sen, in line with our expectation. YTD, a 4 sen DPS was declared.
Expansion plans
In late Oct, the company proposed to acquire 10.4 acres of industrial land in Kulai, Johor for RM11.7m. The land will be used for expanding its operations. Funding is not an issue. Balance sheet was RM18m net debt, or only 0.2x net gearing as at end-Sep. We believe that this land purchase is long overdue as the operations at its existing factory in Johor Baru (four acres) were already running out of space a few years ago.
New shareholder is already in
In Oct, Yong Kwet On emerged as the new major shareholder, owning a 25.4% equity stake in Tomypak. Yong has no major experience in the packaging industry, but was involved in the ICT industry over the past thirty years. So far, there have been no signs of what Yong wants to do with Tomypak. We are also surprised that Yong has yet to ask for a board seat in the company.
Source: CIMB Daybreak - 17 November 2014
