Maybank Research sees stronger earnings for Tomypak

TheStar Mon, Feb 11, 2019 08:57am - 5 years View Original


KUALA LUMPUR: Maybank Investment Bank Research expects Tomypak Holdings to report better earnings growth and EBITDA margin in FY19 on better operational efficiency and lower resin cost.

The research house said on Monday it rolled forward the price earnings ratio (PER) valuations to FY20, deriving a revised target price of 70 sen (FY20 PER of 22.3 times) and upgraded it to Hold. Its earlier TP was 41 sen.

   
“We expect Tomypak to report a more than 100% year-on-year jump in 4Q18 core net profit to RM1.2mil from a net loss of RM1.6mil in 4Q17 (3Q18: +RM3.1mil, 9M18: +RM3.4mil), on recognition of reinvestment allowance. 

“Going forward, we expect Tomypak to demonstrate an improved FY19E EBITDA margin of 12% from 8.5% in FY18E, benefiting from (i) enhanced production efficiency from its new advanced technology, (ii) the realignment of production processes at both its Senai and Tampoi plants and upgrade in system production processes, and (iii) better cost management,” it said.

Maybank Research expects Tomypak’s profit margin to improve further in FY19 due to the decline in resin prices since October 2018, having fallen on average 8%-10%. 

The decline has largely been due to weakening crude oil price and the on-going trade war between the US and China. 

The research house’s petrochemical industry analyst expects petrochemical prices to remain under pressure this year due to distortions in the global supply-chain. 

Maybank Research believes Tomypak will net benefit (considering weaker ringgit) from the time lag between cheap raw materials and competitive selling prices.

“We are keeping our FY18E-20E forecasts for now, pending the release of Tomypak’s 4Q18 results end of this month. Tomypak’s earnings have declined in recent years having been impacted by high start-up and raw material costs. 

“With its relocation plans at tail-end and raw material prices trending down, the worst is over, in our view. With earnings on the rebound, risk-reward has turned balanced. We upgrade the stock to Hold,” it said.

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