INVESTMENT MERIT
Fairly good
performance. Tomypak’s share price has risen 9% since our first
recommendation on 11 Oct 2012. Despite not having an interesting corporate
exercise like that of Scientex-GW Plastics, the market appears to be rerating
the stock gradually higher. The stock is now trading at 6.4x PER as compared to
5.9x earlier. This is likely because the proposed acquisition of GW Plastics by
Scientax was at a reasonably good valuation of 11x FY13 PER, which spurred
buying interest in the flexible
packaging sector. Despite its recent share price rise, Tomypak is still trading
at an undemanding valuation.
New capacity to
support growth. Tomypak is continuously investing and upgrading its
machineries to cater for the growing demand that is mainly being driven by
organic growth as well as the increase in its client base. So for, the group
has spent RM12m in FY12 to increase its capacity by 1k MT to 16k MT. Meanwhile,
it also plans to spend another RM9m next year for printing machine and
lamination machines, which would increase its capacity by c.6%. This reasonable
rate of yearly expansion will also help to cater for the increasing demand from
the Singapore market. Moreover, we
understand that the company has recently secured two new Singapore-based
clients, which would boost its FY13 sales by at least 2%-3%.
9M12 results met
expectation. The 9M12 net profit of RM13.4m was in line with our earnings
projection, making up 76% of our full year FY12 earnings of RM17.6m. In spite
of a flat revenue, the group recorded a 45% YoY jump in its net profit. This
was mainly attributable to a favourable product mix, which came with higher
profit margins to the group due to its technology know-how in providing clients
with greater cost savings.
Adopted a minimum 40%
dividend policy. The group has recently adopted a dividend policy of
distributing a minimum 40% of its annual net profits to shareholders with
immediate effect. So far, the group has been paying dividend every quarter. The
group has in 3Q12 declared a net dividend of 2 sen, bringing its total dividend
to 5.5 sen for the YTD.
Earnings and dividend
estimates. With a minimum payout ratio of 40%, we are projecting FY12 and
FY13 NDPS at 6.9 sen and 7.9 sen, implying net dividend yields of 5.7% and 6.6%
respectively. These projections are based on our FY12 and FY13 EPS projections
of 16.1 sen and 18.6 sen respectively.
Still a Trading Buy.
We are maintaining our earnings and DPS projections. Although the stock price
has risen 9% since our first report on Oct, we believe that there are still
further upside from here as its valuation is relatively cheaper than its peers.
In addition, it offers an attractive dividend yield of 6.6%. We are maintaining
our Trading Buy call and our fair value of RM1.30/share.
SWOT ANALYSIS
Strength:
Continuously improving its productivity, operational efficiency and the quality
of its flexible packaging material with new techonolgy and skills.
Weaknesses: Its
earnings profile can be volatile.
Opportunities:
(i) Ventures into new markets particularly the F&B industry in the emerging
markets like Vietnam and Indonesia. (ii) There are still boundless new
opportunities available, particularly in the emerging markets where the demand
for flexible packaging will increase if the food and beverage packaging standards
in these markets improve. (iii) Potential benefit from corporate exercises
(i.e. M&As, etc.) judging from the recent trends.
Threats: High oil
price volatility may hit the company’s earnings.
TECHNICALS
Resistance:
RM1.25 (R1), RM1.29 (R2)
Support: RM1.15
(S1), RM1.10 (S2)
Comments:
Tomypak's overall uptrend remains intact and the indicators remain at healthy
levels. Traders may consider buying on dips between RM1.15 and current levels,
with upside targets RM1.25 and RM1.29 in mind.
THE COMPANY
Tomypak Berhad is one of the leading coverter for flexbile
food packaging materials in Malaysia. It is established in 1979 and listed on
Main Market of Bursa Malaysia in 1996. Through its subsidiaries, the Company
manufactures and trades plastic packaging materials, polyethylene,
polypropylene films and sheets, and thermoforming sheets. Tomypak is located at
Tampoi, Johor Bahru.
THE BUSINESS
Through its core subsidiary, Tomypak Berhad, plastic
packaging materials are supplied to local and foreign manufacturers involved in
food products and additives, cosmetics and toiletries, and pharmaceutical and
prophylactics sectors. 90% of their products are distributed to food and
beverage industry. Nestle, Kraft, Hup Seng, Mamee, Apollo Food, are the Group’s
key customers which contribute about 70% of its revenue.
Product range of Tomypak can be clssified into high barrier
packaging material for high barrier vacuum matellized laminates through plasma technology,
snack food packaging, instant noodles, confectionary, seasoning, household
products and pet food packaging.
Wide array of manufacturing machines are used to produce
thier packaging material. Gabure printing machine is used for achieving
superior and consistency. To ensure printing quality, camera inspection machine
is applied to detect printing defects. Other various types of machines like
high speed solventbase lamination machine, solventless lamination machine
andextrusion lamination machine are used to produce quality packaging material.
Source: Kenanga
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