Tuesday, January 21, 2014

Thong Guan - expecting double digit growth

It is a beneficiary of strengthening USD and expanding production capacity with its products being exported globally. Its packaging division is similar to Scientex's packaging division without the property division.

Thong Guan Industries Berhad is one of Asia Pacific’s largest plastic packaging companies with over 30 years of experience and distinguished track records. The Company is one of the largest producers of cast pallet stretch film and garbage bags in this region with an annual combined production output in excess of 100,000 metric tons.

The Company’s core manufacturing operations are situated in northern Malaysia, Kedah that covers an area of over 30 acres, with established manufacturing operations in China and Thailand. Dato Ang and family controls 39.8% stake in the Company.

The Company also produces coffee and tea which are mainly sold locally and in SEA countries.

The Company made its highest quarterly earnings in 3Q2013, mainly buoyed by increase in export volume and selling prices. Earnings were also buoyed by higher margin of stretch film and other plastic products as well as the appreciation of the USD vis a vis the Ringgit.

Its 9MFY2013 net profit already reached RM21.85mil. To recap, revenue rose with 4-year CAGR of 10.4% while net profit rose with 4-year CAGR of 22.4% due to expanding margins.

Its 3QFY2013 earnings were boosted by its stretch film, PVC food wrap, garbage bag, industrial bags division, compounding division.

The Group's operations in Sabah has also been profitable as well. The food, beverage and other consumable business unit has continued to grow and is expected to continue its steady progress despite suffering a drop in profitability.

Observers are expecting double digit growth in its net profit whereas PER’13-14 remains at a paltry 6.5x-5.5x, which is considered undervalued currently (Jan 2014). This stock should trade at double digit PER in view of its resilient market and growth prospects.

By comparing Scientex (PER of 9x - lower due to property division chich commands lower PER), Daibochi (PER of 16x) and Tomypak (PER 10-11x) with Thong Guan trading at a PER of 5.5x-6.5x currently (20 Jan 2014).

Its net cash stood at about RM30mil.

However the stock is illiquid.

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Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.