TOMYPAK (7285) - Tomypak Holdings - Recovery year?
Target RM1.37 (Stock Rating: HOLD)
At 140% of our forecast, Tomypak’s FY14 core net profit was above our expectations as 4Q14 showed further profit margin recovery. FY15 should benefit from the decline in raw material prices since end-14. We raise our FY15-16 EPS forecasts by 7-14% to reflect further margin recovery; we also introduce FY17 estimates. Our target price is based on an unchanged 12-month average P/BV of 1.3x. We will continue to use asset-based valuation until quarterly earnings are more sustainable. The stock remains a Hold as stock valuation is still not cheap. For exposure to the packaging sector, we prefer Thong Guan Industries.
FY14 net profit down 42%
Tomypak’s FY14 revenue fell 7% yoy but net profit was down a sharper 42% as profit margin was under pressure mainly due to higher raw material prices for the first nine months of the year and the average 17% electricity price hike electricity in Jan-14. The company declared an interim DPS of 1sen, in-line with our expectations. Full-year DPS declared was 5sen (a dividend payout ratio of 66%).
Declining raw material prices positive for FY15
FY15 promises to be a better year for the company. Prices of raw materials like polyethylene (PE) and polypropylene (PP) films have been falling since 4Q14, in line with the decline in crude oil prices. This is not a surprise as PE and PP films are derivatives of crude oil. Tomypak has been facing higher operating costs since mid-2012. However, its EBITDA margins finally rebounded in 3Q14 and 4Q14 (refer to Figure 1).
Factory expansion in the pipeline
In 4Q14, Tomypak proposed to acquire 10.4 acres of industrial land in Kulai, Johor for RM11.7m. We expect the company to build a new factory on the acquired land. The expansion is long overdue as its existing plant is only four acres and the operations desperately need more working space. Funding should not be a concern as its net gearing is only 0.1x (RM12m net debt).
New management is on board
In end-14, Lim Hun Swee, one of the major shareholders in the company, was appointed as Managing Director. Interestingly, the largest shareholder, Yong Kwet, who owns 25.4% of Tomypak, is only an Executive Director.
Source: CIMB Daybreak - 27 February 2015
Target RM1.37 (Stock Rating: HOLD)
At 140% of our forecast, Tomypak’s FY14 core net profit was above our expectations as 4Q14 showed further profit margin recovery. FY15 should benefit from the decline in raw material prices since end-14. We raise our FY15-16 EPS forecasts by 7-14% to reflect further margin recovery; we also introduce FY17 estimates. Our target price is based on an unchanged 12-month average P/BV of 1.3x. We will continue to use asset-based valuation until quarterly earnings are more sustainable. The stock remains a Hold as stock valuation is still not cheap. For exposure to the packaging sector, we prefer Thong Guan Industries.
FY14 net profit down 42%
Tomypak’s FY14 revenue fell 7% yoy but net profit was down a sharper 42% as profit margin was under pressure mainly due to higher raw material prices for the first nine months of the year and the average 17% electricity price hike electricity in Jan-14. The company declared an interim DPS of 1sen, in-line with our expectations. Full-year DPS declared was 5sen (a dividend payout ratio of 66%).
Declining raw material prices positive for FY15
FY15 promises to be a better year for the company. Prices of raw materials like polyethylene (PE) and polypropylene (PP) films have been falling since 4Q14, in line with the decline in crude oil prices. This is not a surprise as PE and PP films are derivatives of crude oil. Tomypak has been facing higher operating costs since mid-2012. However, its EBITDA margins finally rebounded in 3Q14 and 4Q14 (refer to Figure 1).
Factory expansion in the pipeline
In 4Q14, Tomypak proposed to acquire 10.4 acres of industrial land in Kulai, Johor for RM11.7m. We expect the company to build a new factory on the acquired land. The expansion is long overdue as its existing plant is only four acres and the operations desperately need more working space. Funding should not be a concern as its net gearing is only 0.1x (RM12m net debt).
New management is on board
In end-14, Lim Hun Swee, one of the major shareholders in the company, was appointed as Managing Director. Interestingly, the largest shareholder, Yong Kwet, who owns 25.4% of Tomypak, is only an Executive Director.
Source: CIMB Daybreak - 27 February 2015
