Thursday, 7 March 2013

Tomypak Bhd - Time to take profit


INVESTMENT MERIT
- FY12 in line. In the recent reporting season, Tomypak’s reported FY12 net profit (NP) of RM17.2m came in within our expectations of RM17.6m and that of the consensus of RM17.3m. Its FY12 NP rose 51.3% from RM11.4m to RM17.2m, driven by a better sales mix and a lower cost of production. Net margin of the group surged to 8.0% in FY12 from 5.4% in the preceding year. The company declared a final NDPS of 2.0 sen (ex-date: 14th of March 2013), bringing the full-year FY12 NDPS to 7.5 sen, yielding 6%.

- Less exciting catalysts going forward. The packaging industry players, Tomypak included, experienced a re-rating when Scientex acquired GW Plastic in Nov 2012. However, we expect the industry to be less exciting in 2013 due to a lack of fresh catalysts. In addition, we believe that M&A activities are less likely to happen in 2013.

- Profit-taking time. The share price has risen 16.4% since our first recommendation in Oct 2012. We believe that now could be the time to review our call since there is lacking of price catalyst for the near-term and given the limited upside to our TP of RM1.30. At RM1.28, the stock is trading at 6.9x FY13 PER, which is in line with the small caps’ forward PER of 7.0x. Thus, we recommend investors to take profit for now. We will review the stock again when fresh price catalysts arise.

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) Ventured 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 F&B packaging standards in these markets improve and (iii) potential benefit from corporate exercises (i.e. M&A.) judging from the recent trends.

- Threats: High oil price volatility may hit the company’s earnings.

TECHNICALS
- Resistance: RM1.30 (R1), RM1.41 (R2)
- Support: RM1.15 (S1), RM0.97 (S2)
- Comments: Tomypak's overall uptrend remains intact although the technical picture is starting to show bearish divergent signals. The remaining indicators have also weakened, and we expect very limited upside from here. Look to take profit for now.

THE COMPANY
Tomypak Bhd is one of the leading coverter for flexible food packaging materials in Malaysia. It was established in 1979 and listed on the 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.

THE BUSINESS
- Through its core subsidiary, Tomypak Bhd, 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 its products are distributed to the F&B industry. Its key customers like Nestle, Kraft, Hup Seng, Mamee, Apollo Food contribute c.70% of its revenue.

- Its product range can be classified into high barrier packaging materials for high barrier vacuum matellized laminates through plasma technology, snack food packaging, instant noodles, confectionary, seasoning, household products and pet food packaging.

Source: Kenanga

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