Analyst Reports

 

 

Thong Guan Industries Bhd

By Kenanga Research

Outperform (upgrade)

Target price: RM5.40

KENANGA Research has raised its target price for Thong Guan to RM5.40 from RM4.76 previously.

The brokerage has also upgraded its rating on the counter to “outperform” from “market perform”, citing that Thong Guan’s fundamentals remain intact, while upsides are attractive at current share price level which has corrected by about 8% since the end of February this year.

Kenanga Research says its new target price for Thong Guan is based on a valuation of 14.6 times the estimated earnings per share (EPS) of 37.1 sen for the financial year ending Dec 31, 2018.

This could imply an attractive return of 26% at current levels.

For the first quarter of this year, Thong Guan’s core earnings of RM14.8mil came in well within Kenanga Research and consensus expectations at 25% and 23%.

According to Kenanga Research, Thong Guan’s top and bottom line growth will be driven by higher margin products, with the commissioning of the second 33-layer nanotechnology stretch film line, the eighth PVC food wrap line in the second half of this year.

It notes that Thong Guan’s planned five-layer blown film line will accrete mostly in 2018.

Kenanga Research says it is positive on Thong Guan’s prospects as the company is consistently investing in research and development to improve sales and margins on existing products, that is stretch film, and continues to revamp its customer base to target more multinational corporations.

It expects Thong Guan’s continued expansion into high-margin production lines to sustain the group’s plastic segment margins.