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Saturday, May 28, 2016

Thong Guan Industries Bhd (RM3.24): Quarterly Profit a Confidence Booster

I was reluctant to write about this company earlier as I wasn't sure how sustainable its highest recorded RM15mil++ profit in 4Q'15 was going to be. In addition, many exporters were affected by USD weakness in 1Q'16, as evidenced by a few popular names such as Evergreen, FLBhd, LCTH, SHH, Latitude etc. which reported quite disappointing results. (However, Lii Hen is an exception, which surprised me.)

However, Thong Guan's 1Q'16 results proved to be a real confidence booster as it held up well with net profit of RM13mil on stronger-than-expected plastic and F&B segment’s margin. If excluding additional forex loss of RM2.62mil, latest quarterly net profit could have exceeded its previous quarter's. Consequently, analysts upgraded their target prices, with Kenanga upping its target price from RM3.33 to RM4.19 while CIMB raised its target price from RM3.20 to RM3.67. 

Having said that, analysts' estimates are still way way too conservative with 2016 net profit forecasts still remain at around RM40mil. Kenanga analyst said that her estimates are still conservative and may look to upgrade her earnings forecast. I believe that Thong Guan can easily get above RM50mil for this year and RM60mil is not difficult at all. Besides, quoting from a famous analyst, Harry Teo, management indicated that 2Q'16 results will likely be better than 1Q'16. Annualizing its quarterly net profit of RM13mil could easily yield RM52mil for the whole year. 

For Kenanga report, click here
For Harry Teo's write-up, click here


Prospects (Taken from its quarterly report): 
In the first quarter of 2016, the Group has successfully commissioned its 33-layer nano-technology stretch film line, its 5-layer-blown film line, its automatic continuous organic noodle production line as well as its R&D centre. The Group has now positioned itself on a growth trajectory. It is pleasing to report that all operating divisions within the group has been profitable in the current quarter and is charting further growth. The Group is also currently looking at acquiring stretch film and PVC food wrap lines. Further growth on both volume and value is expected from plastic products and F&B in year 2016.

For 1Q'16 quarterly report, click here


Valuation: 
Assuming net profit of RM52mil for 2016; Not accounting for dilution effect of warrants & ICULS (way out of money)
  • PE'16: 7.5x 
  • Earnings growth 2016: 35% 
  • ROE'16: 13% 
  • P/B: 0.85x 
  • Div Yield: >3% 
  • Net cash: RM0.66 per share 
Attaching PE'16 of 10x for its share price can easily yield a target price close to RM5. 


Prominent investors in the game: 
  • Koon Yew Yin: 2.06mil shares 
  • Dr. Neoh of Dynaquest: 1.9mil shares 
  • Fong Si Ling: 600k shares 
For shareholders' list, click here.


Disclaimer: I'm a shareholder of Thong Guan Industries Bhd. 

3 comments:

  1. Hi david,

    Like your investment approach. Steady, patience and deep.

    By the way, iculs is in the money. Fyi.

    Do visit my blog and comment if anything that i can improve.

    For me, decisions were real quick. Profits continue coming. But sometimes i sell too early or buy less because lack of info.

    With the increase in portfolio value, additional few percent means a lot also.

    Hope u can share more also.

    Tq

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  3. Thanks Peggy. I enjoy your blog posts as well. Two or three hits per year is good enough for me, thus less posts from me :P

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