PPHB (Trading At Discount To Its Peers) ...

It is a small cap packaging supplier involved in developing, designing, printing and manufacturing paper packaging products. It also manufactures point of purchase displays for consumer brands such as Maybelline, Energizer, Twisties and FisherPrice.

It is currently (July 2014) trading at 8.6 times to 7.3 times financial year 2014 ending Dec 31/FY2015 forward PER which is at an 8% and 40% discount to its packaging peers’ estimated forward PER of 9.3 times and the FBMSC forward PER of 12.7 times.

Its prospects remain bright and has strong profitability track record. Its first quarter ended March 31 2014 year on year earnings growth of 139% is much stronger than its packaging peer’s average of 65% yoy earnings growth.

In the past five years, Japanese companies have been actively acquiring controlling stakes in Malaysian packaging companies.

Locally, we have observed consolidation in this segment … Scientex, GW Plasticcs, Can-One) as packaging players try to capture market share.

On average, the merger and acquisition valuations of acquired companies are 10.1 times based on a range of 6.4 times to 12 times forward PER with a market cal range of rm67 million to rm1.4 billion.

While observers cannot verify whether PPHB is in talks or is a takeover target, it is strongly believe that its valuations are backed by recent M&A activities. Estimate that the company’s valuation should not be far from the 10.1 times average PER of its M&A peers, given its steady growth trajectoty.

However PPHB’s current FY2014 PER of 8.6 times implies a 15% discount to the 10.1 times M&A average.