CGS-CIMB Research expects the group’s revenue growth to return to pre-Covid-19 levels.
PETALING JAYA: Thong Guan Industries Bhd
is expected to see weaker demand for its plastic packaging products while a stronger ringgit is not favourable for the company, according to CGS-CIMB Research.
The research house also expects the group’s revenue growth to return to pre-Covid-19 levels.
“We lower our financial year 2023 (FY23) to FY25 revenue estimates by 17.1% to 23% to account for the normalisation of demand for plastic packaging products to pre-Covid-19 levels.
“Our revised estimates showed a revenue decline of 11.4% year-on-year (y-o-y) in FY23 and growth of 7.6% to 12.5% per annum in FY24 and FY26.
“This implies a FY23 to FY26 compound annual growth rate (CAGR) of 9.7% per annum, which is consistent with historical growth trends,” added CGS-CIMB Research.
It said FY21 and FY22 were bumper years for Thong Guan due to elevated demand during the pandemic, which had since normalised as evidenced by the 13.8% y-o-y decline in the first nine months of its FY23 revenue to RM921.7mil.
For comparison, CGS-CIMB Research pointed out that the manufacturing industrial production index for plastic packing articles had shown a 10-year CAGR of 8.7% from 2009 to 2019.
Additionally, the exports of plastic sheets and films had shown a 10-year CAGR of 7% over the same period.
Meanwhile, it said a weakening US dollar or stronger ringgit might result in margin contraction for Thong Guan.
It said the company’s large exposure to US dollar-denominated transactions, constituting around 80% of its export revenue as of FY22, had positively impacted its operating margins over the past three years.
