Thong Guan Industries Berhad

$TGUAN / 7034 (THONG GUAN INDUSTRIES BERHAD)
Research by KENANGA

$TGUAN / 7034 (THONG GUAN INDUSTRIES BERHAD)
Research by Kenanga

KENANGA TOP PICKS Q4 2024

Play broadening out. Post US Federal Reserve’s pivot, Malaysia should remain in a sweet spot as a net beneficiary of equity inflows, thanks to stable interest rate, and relatively appealing valuation versus historical norms. Unsurprisingly, recent market interest has largely been in blue chips, but we see broadening out in foreign interests in key sectors beyond the comfort zone of large caps, such as in banks which is somewhat underway.

Overhang removal play. In 4QCY24, we anticipate news on telco overhang removal for mobile network operators, dovetailing into tech plays to be rekindled as data centre ramp up to fit-out stage. Historically October is a quiet month, but we anticipate 4QCY24 to get more vibrant as domestic news flow ramp up, including Budget 2025, for positioning into more volatile names. Externally, sentiment improvement in US stocks is typical after US elections (5th November).

Negatives priced-in play. Sectors such as oil and gas have been unjustifiably de-rated beyond their fundamentals. Also, as value have emerged, we recently upgraded the glove sector on demand-supply rebalancing (tariffs notwithstanding), and automotive sector.

$DAYANG / 5141 (DAYANG ENTERPRISE HOLDINGS BERHAD) $DIALOG / 7277 (DIALOG GROUP BERHAD) $TGUAN / 7034 (THONG GUAN INDUSTRIES BERHAD) $WASEONG / 5142 (WAH SEONG CORPORATION BERHAD) $MKH / 6114 (MKH BERHAD)

George Town: Despite the soft market, Thong Guan Industries Bhd’s 2024 revenue is expected to improve over 2023.

$TGUAN / 7034 (THONG GUAN INDUSTRIES BERHAD)
Research by Kenanga
OUTPERFORM – TP RM2.80

" Stretching New Frontiers”

Despite soft demand and rising competition, TGUAN guided for growth driven by ongoing innovation, responsive services and aggressive marketing, especially of more high performance sustainable stretch films in Europe and North America. Additionally, it is ramping up production in its industrial bag division and has commissioned a new stretch hood line, optimising production efficiency. We tone down our FY24F earnings forecasts marginally by 3% to reflect short-term cost pressures, with FY25F numbers unchanged. We also make minor housekeeping adjustments on the share base due to ESOS, hence our TP is trimmed slightly to RM2.80 (from RM2.86), but we maintain our OUTPERFORM call.

Analyst:
Thin Yun Jing
thinyj@kenanga.com.my

$TGUAN / 7034 (THONG GUAN INDUSTRIES BERHAD): Q2FY24 Performance Highlights

1. Revenue: The company reported RM303.24 million in revenue, marking a 4.3% year-over-year (YoY) increase but a 12% quarter-over-quarter (QoQ) decrease. The YoY growth was driven by higher sales in the plastic packaging products and F&B and other consumables divisions, while the QoQ decline was primarily due to lower sales volumes in stretch films, industrial bags and films, courier bags, and garbage bags.

2. Plastic Packaging Products: Revenue for this segment reached RM268.19 million, a 2.5% YoY increase, mainly due to higher sales volumes and revenue from industrial bags and films, food wrap, and garbage bags. The segment's profit before tax (PBT) also rose by 3.9%, totaling RM23.56 million.

3. F&B and Other Consumable Products: This segment recorded RM35.05 million in revenue, up 20.3%, primarily due to increased sales of coffee and tea. The PBT for this segment grew by 14%, reaching RM2.48 million.

4. PBT: The company reported a PBT of RM26.04 million, reflecting a 4.8% YoY increase but a 16.6% QoQ decrease. The YoY growth was driven by higher sales volumes in industrial bags and films, food wrap, and garbage bags, while the F&B and other consumables segment’s PBT grew alongside sales. The QoQ decline in PBT was consistent with the decrease in revenue.

5. Net Cash: TGUAN maintained a strong net cash position of RM151.82 million during the quarter.

6. Dividend: The company proposed an interim dividend of 2.5 sen per share for this quarter.

7. Outlook: TGUAN plans to focus on cost reduction, managing operational waste, and improving productivity and efficiency. Additionally, the company will continue to expand its market presence in Europe and the USA with innovative marketing strategies.

$TGUAN / 7034 (THONG GUAN INDUSTRIES BERHAD)
Research by CGS
ADD – TP RM2.67

"Resilient demand despite global tension”

■ 1H24F core net profit of RM44.7m was up 13.4% yoy and in line at 52.2% of our FY24F estimate and 47.5% of Bloomberg consensus.
■ The earnings increase yoy was due to stronger sales volume recovery for industrial bags, film and garbage bags.
■ We reiterate Add on TGI, with a GGM-derived TP of RM2.67, implying FY26F P/E of 11.4x.

Analyst:
Shafiq KADIR
shafiq.abkadir@cgsi.com
Prem JEARAJASINGAM
prem.jearajasingam@cgsi.com

$TGUAN / 7034 (THONG GUAN INDUSTRIES BERHAD)
Research by Kenanga
OUTPERFORM – TP RM2.86

"Growth Driven by Innovation”

TGUAN’s 1HFY24 results disappointed due to cost pressures. Nonetheless, 1HFY24 core net profit rose 7% YoY driven by stronger sales in plastic packaging and F&B divisions. Despite some cost pressures and stronger MYR, TGUAN remains poised to grow in Europe and US in the longer term, thanks to product innovation. We trim our FY24F and FY25F earnings forecasts by 8% and 12%, respectively. However, we maintain our TP of RM2.86 as we roll forward our valuation base year to FY25F (from FY24F), with our ascribed PER unchanged at 11x. Reiterate OUTPERFORM.

Analyst:
Thin Yun Jing
thinyj@kenanga.com.my

huh, $TGUAN / 7034 (THONG GUAN INDUSTRIES BERHAD) website got hacked hahahaha
need more help from $LGMS / 0249 (LGMS BERHAD) ?

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - PRUDENTIAL PLC

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - EASTSPRING INVESTMENTS BERHAD

Additional Listing Announcement /Subdivision of Shares

PLASTIC PACKAGING
$TGUAN / 7034 (THONG GUAN INDUSTRIES BERHAD)
Research by Kenanga
Overweight

“Sustained Orders”

We maintain OVERWEIGHT for the sector. Plastic packaging players guided for sustained orders for their products during the remainder of CY24 backed by the recovery in manufacturing activities and consumer spending globally, following restocking by their customers during the early part of the year. Over the long term, local players are poised to gain market shares from overseas producers given local player’s low cost structure, better economies of scale and product innovation especially sustainable plastic packaging materials. Our sector top pick is TGUAN (OP; TP: RM2.86).

Analyst(s):
Thin Yun Jing
thinyj@kenanga.com.my

KENANGA 2H 2024 TOP PICKS SMALL CAP

$OPPSTAR / 0275 (OPPSTAR BERHAD) $KAREX / 5247 (KAREX BERHAD) $TGUAN / 7034 (THONG GUAN INDUSTRIES BERHAD) $MKH / 6114 (MKH BERHAD) $ENGTEX / 5056 (ENGTEX GROUP BERHAD)

Changes in Director's Interest (Section 219 of CA 2016) - DATO' ANG POON KHIM

DEALINGS IN LISTED SECURITIES (CHAPTER 14 OF LISTING REQUIREMENTS) : Dealings Outside Closed Period

Additional Listing Announcement /Subdivision of Shares

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - PRUDENTIAL PLC

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - EASTSPRING INVESTMENTS BERHAD

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - EASTSPRING INVESTMENTS BERHAD

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - PRUDENTIAL PLC

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - EASTSPRING INVESTMENTS BERHAD

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - PRUDENTIAL PLC

DEALINGS IN LISTED SECURITIES (CHAPTER 14 OF LISTING REQUIREMENTS) : Dealings Outside Closed Period

Changes in Director's Interest (Section 219 of CA 2016) - DATO' ANG POON KHIM

Additional Listing Announcement /Subdivision of Shares

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - EASTSPRING INVESTMENTS BERHAD

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - PRUDENTIAL PLC

Key Takeaways from $TGUAN / 7034 (THONG GUAN INDUSTRIES BERHAD)'s AGM

📌 In the fourth quarter of last year, there was a bad debt of 10 million due to a long-standing debt from a customer during MCO, as recommended by the auditor, though TGUAN noted that the customer has a repayment plan extending over the next 4 years, potentially allowing for a write-back.

📌 This year, expansion will decelerate due to the relatively weak overall environment, with the overall utilization rate at 60%. Two new production lines for Stretch film were installed last year and earlier this year, which have already commenced operations.

📌 In Myanmar, development has been halted due to geopolitical tensions.

📌 Regarding the production of food packaging, industrial goods packaging, and courier bags, the boss noted that demand has remained relatively stable this year, with slight growth in local demand and average foreign demand.

📌 TGUAN has established a presence in the US, with a sales person, sales point, and warehouse set up to provide after-sales service and educate customers on product usage. The company's stretch film, incorporating nano-technology and comprising very thin layers, has transitioned from 33 layers to 67 layers.

📌 With regards to entering the real estate sector, the company sees potential due to the success of many Kedah real estate companies, prompting the initiation of involvement in this industry to diversify profit streams.

📌 Construction of 200 stores adjacent to LAGENDA properties is planned, primarily focused on residential housing. TGUAN's involvement aims to create a more integrated township, with Phase 1 set to establish 60 shop lots, projecting gross profits in the double digits. Feedback from the market has been positive, indicating potential for successful sales.

📌 The company's raw materials, including naphtha, PE, and PP, have stable prices at a considered low level. Notably, $LCTITAN / 5284 (LOTTE CHEMICAL TITAN HOLDING BERHAD)'s continued loss-making performance which is also why the company to accumulate raw materials in Q3 and Q4. This strategy aims to maintain or expand the company's future gross profits.

📌 The company anticipates that its growth may not reach previously high expectations. While Q1 showed satisfactory growth, Q2 exhibited a gradual slowdown.

$TGUAN / 7034 (THONG GUAN INDUSTRIES BERHAD)
Research by Kenanga
Outperform – TP RM2.86

“Improved Margins for Stretch Film"

TGUAN guided for improved margins for its stretch film, which is marketed in the export market as a premium packaging solution. We are mildly positive on its new RM200m commercial development project in Sungai Petani, Kedah, given the incremental profits, albeit small. We maintain our forecasts, TP of RM2.86 and OUTPERFORM call.

Analyst:
Thin Yun Jing
thinyj@kenanga.com.my