Thong Guan is seeing increasing demand for its premium stretch films among European distributors.
PETALING JAYA: Unfazed by the potential economic slowdown in 2023, Thong Guan Industries Bhd
is expected to seize more market share for its products in Europe, says CGS-CIMB Research.
The research house, which hosted a recent conference call with the country’s largest stretch film manufacturer, said: “We are in concert with the group’s anticipation of growing its earnings further, thanks to its effort to deepen its penetration into Europe and the Anglosphere markets.”
A case in point is the increasing demand for Thong Guan’s premium stretch films, which are rising in popularity among European stretch film distributors.
This is due to the continent’s stringent requirements for environmental compliance and rising automation in the logistics process, said CGS-CIMB Research.
Despite its overall stretch film sales volume dipping 1% year-on-year (y-o-y) in the nine months of 2022, Thong Guan’s segment pre-tax profit surged 22% y-o-y because it sold more higher-margin premium stretch films.
“The group has begun marketing its products to end-clients in Europe, where it hopes to catapult its sales, going forward.
“Also, the prospects of its other products such as polyvinyl chloride (PVC) food wrap and eCommerce bags are also looking up with the economic reopening,” it pointed out.
Thong Guan also acknowledged the risk of a global economic slowdown in 2023, but said “the group may not be hit as badly as other businesses”.
Its consolidated earnings should still grow y-o-y in financial year 2023 (FY23), it added.
For one, its PVC food wrap product segment should do better in FY23, given that the global economic re-opening is only warming up.
News of China unwinding its zero-Covid policy and hopes for the economy to rev up again could breathe some life into the country’s hotels, restaurants, and cafes sector, said CGS-CIMB Research.
Thong Guan is also hopeful that its eCommerce bag segment would turn around in FY23.
It noted that orders for eCommerce bags came back in October and November, and the segment returned to profitability in the two months.
As for its food-and-beverage division, Thong Guan said it was looking to further expand its sales in Thailand.
“With coffee bean prices cooling off and stabilising in 2022, the profit margins of its coffee drink products could widen as it had increased their prices in 2021,” it added.
CGS-CIMB Research has reiterated an “add” call on Thong Guan with a target price of RM4.54.
