KUALA LUMPUR: Flexible plastic packaging products maker Tomypak’s first half net profit was at 37% of CIMB Equities Research’s full-year forecast due to weak export revenue and higher raw material costs.
The research house said on Monday Tomypak remains a Reduce and it prefers Thong Guan for exposure to the packaging sector.
It said Tomypak’s 1H17 revenue fell 1.8% on-year to RM106.2mil mainly due to weak export revenue.
The 1H17 export revenue fell by 5% on-year to RM55.1mil while domestic revenue rose only 2% on-year to RM51.1mil.
“However, 1H17 net profit was up 19.8% on-year mainly due to a low tax rate as the company benefited from reinvestment allowances. The 1H tax rate was only 4.6%,” it said.
CIMB Research said with the new factory operational in April 2017, the group’s annual production capacity for flexible plastic packaging products rose 30% to 25,000 tonnes.
“However, we believe it would be challenging for the company to fill up orders for the additional capacity. The company has indicated that it is looking outside the food & beverage (F&B) industry to grow its topline.
“However, we feel this will not be easy as Tomypak has so far exclusively focused on the F&B sector,” it said.
Depreciation in 2Q17 rose 16.7% on-quarter to RM3.5mil, mainly due to the start of commercial operations at the new factory from April onwards.
The research house expects the quarterly depreciation to rise at a much faster rate in FY18F as more new machines are scheduled to be delivered by year-end.
As at end-June, Tomypak’s net debt was RM27mil. Capex for the new factory was mainly funded via the rights issue in 2016 which raised around RM54mil.
Even after the capacity expansion, Tomypak’s net gearing remained healthy at 0.14 times as at end-June.
In early June, the company completed the one into two share split and one for four bonus issue.
Hence the issued shares rose from 164.8 million to 412 million shares after the completion of the share split and bonus issue.
Although fundamentals have not changed, the bonus issue and share split should help boost trading liquidity in the stock.
“We lower our FY17F EPS by 15.8% to reflect the expected weakness in export revenue this year. However, our target price remains based on an unchanged 13 times FY18F P/E, which is our packaging sector target P/E.
“The stock remains a Reduce, with the de-rating catalyst of weak export demand. An upside risk is a strong recovery in export sales. We recommend a switch to Thong Guan Industries for exposure to the packaging sector,” said CIMB Research.
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