limited upside seen for tomypak - food packaging film
Mid-term prospects seem bright
The long term outlook remains challenging, and tomypak Holdings Bhd has worked well over the past year, with its shares becoming one of the best performing stocks on the local exchange in 2017.
But as a medium, it seems increasingly challenging for the counter to gain further momentum in the new year
The long-term earnings outlook for food packaging manufacturers has become blurred.
For example, a local fund manager said further increases could be limited at the moment, as she expected the company's earnings to be under pressure in the medium term. “The longer-
The long-term prospects for this company may be bright, but for now we think it has reached its peak. . .
We expect the group's net profit to be affected by a shrinking profit margin and rising costs, "the fund manager of a local asset management company told StarBizWeek.
She pointed out: "I would like to say that this trend is already clear because the group's bottom line has not met expectations in the last two consecutive quarters, "About Tomypak's performance in the second and third quarters of the fiscal year ended December 31, 2017.
Tomypak plans to launch the fourth
Quarterly data by the end of next month.
The company's share price rose impressive last year, up about 57% as of 97.
5 Sen from 62 on December 29.
2 in early 2017.
The counter did not change at rm1 yesterday. 03.
At present, the share price of Tomypak is around 17 points.
The group's 2018 consensus estimates revenue to be 6 Times, 13 times.
Eight times that of 2019.
According to an analyst, the risk-return outlook for Tomypak in the medium term is expected to dampen investor confidence in the company's shares.
"We think that the share price increase of Tomypak last year was mainly due to the impressive first place of the group.
But looking forward, we do not see any strong catalyst for its stock;
We believe that so far the market has priced many positive factors, including the group's upcoming capacity expansion . "
In addition, he said the company's profit outlook "does not look good" due to pressure on profit margins ".
"The group is faced with rising raw material costs and increased operating expenses.
"We believe that the company must quickly address the problem of declining profit margins, otherwise its profits will continue to be impacted, which will affect confidence in the stock," he explained . ".
At the same time, a source close to the company believes that the challenge facing the company is only short-term, as the group remains focused on expanding its business in both local and foreign markets.
Tomypak has developed various strategies to reduce its revenue risk, he added.
For example, in order to cope with the pressure on profit margins and improve the profitability of the group, Tomypak is currently negotiating new deals with its suppliers to find new ways to do business with customers, the source said, introduce new equipment with the latest technology to increase costs.
"The company has implemented several initiatives to address the problem of falling profit margins and rising costs.
"This includes working closely with all raw material suppliers and customers," he said . " He pointed out that,
So far, the actions of all parties have yielded fruitful results.
In addition, he also said that there are many interiors of Tomypakefficiency-
Improve strategies and action plans, which include being more innovative throughout the chain of operations.
"The company remains at the forefront of research and development (R&D)
Continuously improve products and solutions for customers. . .
"This continuous effort not only helps the company to meet the strict needs of its customers, but also helps the company to improve production efficiency and reduce costs," he explained . ".
Nevertheless, sources acknowledge the inevitable challenges.
For example, the strengthening of ringgit does not bode well for Tomypak, which may result in reduced export orders and loss of foreign exchange translations due to its outward Sales in US dollars.
Export orders now account for about 50% of the group's revenue.
On a global scale, the food packaging industry is experiencing a wave of mergers and acquisitions (M&A)
For example, Amcor Ltd, the world's largest player, reinvented the game space.
The source said that Tomypak needs to develop strategies to manage the changing environment brought about by the M & A wave in order to compete effectively with big boys globally.
He said that Tomypak must also be aware of the possibility of global big boys entering the Malaysian market locally, because this may lead to more competition in the already small market.
The expansion plan is currently the second.
Malaysia's largest manufacturer of flexible food packaging, second only to the Daibochi plastics and packaging industry Bhd.
According to estimates from Maybank Investment Bank Research (Maybank IB)
, Tomypak currently controls about 35%-
According to revenue, the country's market share is 40% per cent, while the market share of big bochi is estimated to be 55% per cent. 60%.
As a group, Tomypak participates in the manufacture and marketing of flexible packaging materials, mainly for local and international food and beverages (F&B)companies.
It's worth noting that about 99% of Tomypak's customers are from this recession --
Flexible catering department.
Its customers include well-known brands such as Nestle, Unilever, Ajinomoto, Kraft Foods, Mamee and Apollo.
"Tomypak will continue to focus on developing its business in the catering industry. . .
"The positive side for the company is that it offers high-quality printing and packaging materials that adopt the highest standards in the industry," the source said . ".
"While this will undoubtedly cost more for Tomypak, the plan is expected to set a high entry threshold to defend against competition, at the same time, it can meet the strict requirements of customers, especially multinational companies, "he added.
Tomypak's current revenue is almost equal between domestic and overseas markets. South-
East Asia is the group's main market destination, followed by Russia and South Africa.
Tomypak currently has a total installed capacity of 25,000 tons at two production plants Tampoi and Senai in Johor.
The two plants have a total construction area of more than 410,000 square feet, which is enough to meet the group's expansion strategy for the next five years.
At present, Tomypak is installing new printing and laminating production lines as well as other auxiliary and support equipment, and it is expected to double its production capacity in the next two years.
The group expects its infrastructure investment to be more efficient and ultimately translate into better operating margins.
According to Maybank IB, Tomypak's expansion plan and continuous quality improvement will provide more for the group
Its market share and earnings growth need momentum.
Maybank IB has a "buy" call for Tomypak with a target price of rm1. 05 based on 16.
The brokerage expects the latter to make a profit of 5 times 2018.
Although Tomypak has achieved disappointing results in the nine months ended September 2017, Maybank IB said it believes that due to increased sales from both local and overseas, the company is in better productivity.
In a recent note on the company, MaybankIB wrote: "We believe that the operating costs in 2017 are higher, especially the operating costs of new plants, paving the way for better revenue growth in the future
The brokerage said sales of Tomypak are expected to accelerate after obtaining standard certification.
It also expects Tomypak to consume new in-house film.
MaybankIB quoted Euromonitor as reporting that consumption of global flexible catering packaging products is expected to grow at a compound annual growth rate of 2. 7% (food)and 3. 8% (beverage)
Between 2016 and 2021.
However, Kenanga's research is not optimistic.
The brokerage recently downgraded its call for Tomypak to "poor performance" with a target price of 80 sen based on 18.
It is three times the latter's estimated income of 2018.
"Although Tomypak's bullish capacity expansion is scheduled to reach 89% by 2020 --
2021 is a positive factor, and we believe that the current valuation is stretched, which requires a "poor performance" call because of poor performance in recent quarters,than-
Profit margins are expected, "Kenanga Research explained in a November 24, 2017 report.
"So we now choose to be conservative by pricing the revenue risk, but we may be looking to increase revenue and call for more specific profit improvements," it added . ".
In another report released this month, Kenanga Research pointed out that recent revenue growth (if any) from plastic packaging manufacturers such as Tomypak will mainly come from profit expansion.
"This is based on better cost efficiency and product innovation, which may increase profit margins as plastic manufacturers seek to sell more profitable and more profitable products," said the brokerage . ".
Tomypak announced net profit of rm13.
In the nine months ended September 2017, 43 mils, an increase of about 11% over rm12.
The corresponding period of the previous year was 12mil.
As a result, the group's earnings per share rose to 4. 91 sen from 4.
During the period under review, the group had a lower income of rm158.
Compared with rm159, 91.
It was 74 Mil before.