KUALA LUMPUR (Nov 30): CGS-CIMB Research has upgraded Tomypak Holdings Bhd to "hold" at 75 sen after its share price retraced by 21% from its year-to-date (YTD) high of 94.5 sen.

The research house’s analyst Kamarul Anwar said in a note today that despite the group’s nine months ended September 30, 2020 (9MFY20) core net profit making up less than 1% of its full-year forecast, he still upgraded the stock to Hold as its upside may be capped at this level.

“Tomypak’s 9M20 core net profit made up less than 1% of our full-year forecast as delivery delays in 3Q20 spoiled its recovery momentum,” he said.

Tomypak announced last Wednesday that it returned to the black for the third quarter ended September 30, 2020 (3QFY20) with a net profit of RM1.76 million. The group slipped into a net loss of RM6 million in 2QFY19.

The group’s revenue for 3QFY20 also slipped 3.98% to RM37.01 million, from RM38.54 million.

For the nine months ended September 30, 2020 (9MFY20), the group’s net loss narrowed to RM770,000, from RM11.54 million. Its revenue for the nine months period fell 3.03% to RM117.45 million, from RM113.9 million.

“While the group is streamlining its operations to reduce its operating leverage, we fear that stiff competition in the downstream packaging industry may force Tomypak to acquiesce to reducing prices in order to win customers.

“With that, we cut our FY20 to FY22F earnings per share by 13% to 43% to account for lower margins. We also taper down our sales growth assumptions as we rein in our optimism,” said Kamarul Anwar.

“Tomypak’s share price rallied in mid-2020 in anticipation of a turnaround. As the 3Q20 numbers have shown, the group’s return to black may not come as early as we had expected,

“Our target price rises from 71 sen to73 sen solely because we rollforward our valuation year to CY22,” he said.

At 10.13 am, Tomypak rose 1 sen or 1.33% to 76 sen, valuing the group at RM327.19 million.