PETALING JAYA: Thong Guan Industries Bhd
’s expansion into Europe is set to bode well for the stretch film manufacturer, as the region has been driving its growth over the past six years.
It was noted by CGS-CIMB Research that Thong Guan’s exports to Europe increased from RM46mil in financial year 2017 (FY17) to RM148.1mil in FY21, raising the region’s sales contribution from 5.5% in FY17 to 12.2% in FY21.
The group found that premium stretch film and blown films generate higher margins, making up most of the company’s exports to Europe in FY22.
“This is due to more stringent requirements for environmental, social and governance (ESG) standards there and the continent’s higher adoption of Industrial Revolution 4.0,” said CGS-CIMB Research.
It was also observed that automation in the logistics, manufacturing and distribution segments in Europe required more durable and thinner stretch films compared to the ones produced by Asian stretch film makers.
On another note, Thong Guan will be making its debut at the triennial Interpark 2023 trade and packaging fair, the largest trade exhibition in the world for the packaging industry, which will be held in Dusseldorf, Germany.
CGS-CIMB Research said the group seeks to set up a booth with hopes of introducing itself to fast-moving consumer goods companies in Europe and showcasing its technological capabilities.
“Instead of just displaying its stretch films, the group plans to demonstrate its smart wrapping machine monitoring which allows users to track each film wrap in real time,” CGS-CIMB Research said.
The research house believes the group’s unique play in the packaging sector and technological knowhow allows it to venture into high-value markets and help its end-clients meet their ESG requirements.
Therefore, the research house reiterated a “buy” call on Thong Guan with a target price of RM3.05.
For its FY22 ended Dec 31, 2022, Thong Guan reported a net profit of RM100.48mil, compared with RM92.97mil in the previous corresponding period.
Revenue improved to RM1.39bil against RM1.21bil in the previous corresponding period.
In a statement following the announcement of its FY22 performance, Thong Guan said it had experienced a steady accumulation of orders for its plastic products.
It said this was in tandem with the gradual increase of plastic prices since January 2023.
“These orders are anticipated to increase the sales volume for FY23.
“In addition, the group is optimistic about the full operations of its three new European blown film lines and two newly commissioned premium stretch films lines.”
Throughout FY22, Thong Guan said the world experienced a sudden surge in interest rates and a significant level of volatility in foreign exchange rates, particularly during the last two quarters of the year.
“Consequently, the group had to bear a total of RM4.5mil in realised foreign-exchange (forex) losses, coupled with RM5.39mil in unrealised forex losses.
“However, in response to these challenges, the group has proactively devised strategies to mitigate both interest rate and forex risks.”
Moving forward, Thong Guan said its management will remain vigilant and continue to adopt precautionary measures to navigate the global changes effectively.
“Assuming there are no unexpected hurdles, the group anticipates a promising growth trajectory across all of its business units,” it said.
