An update on TGUAN’s latest quarter (2Q2021) results for the period 1 April to 30 June 2021. Our first article on TGUAN was published on 1 April 2021.
Visit our official site for complete details.
KEY SUMMARY
1. For 1H2021, the Group recorded a commendable revenue improvement of RM177m / 25% as compared to 1H2020. The increase was mainly due to the increase in ASP and higher sales volume of plastic products.
2. In terms of profitability, the Group recorded a strong gross and net margin of 16% and 8%, respectively. In comparison, TGUAN’s 5-year average gross and net margins were 14.7% and 6.5%, respectively.
3. In our view, the current valuation of 12.2x PE multiple remains reasonable with decent upside potential. Historically, the Group’s valuation ranged between 10x – 15x PE multiple. We opine that the Group deserves a premium valuation compared to the past for its aggressive expansion plans ahead.
UPDATE ON LATEST QUARTER (MAR – JUN) RESULTS
The higher revenue recorded was mainly due to a hike in average selling price (“ASP”) on all plastic products i.e. stretch film, industrial packaging, garbage bags and courier bags.
This is apparent from the 16% jump in net profit compared to the 9% increase in revenue. The latest quarter gross and net margins were in fact at a 5-year high.
In recent months, resin prices have stabilised and seem to be cooling off. A steep decline in resin price would most likely result in a downward revision of ASP moving forward.
UPDATE ON 1H2021 (JAN – JUN) RESULTS
For 1H2021, the Group recorded a commendable revenue improvement of RM177m / 25% as compared to 1H2020. The increase was mainly contributed by the increase in ASP and higher sales volume of stretch film, courier bags, and premium packaging films.
In terms of profitability, the Group maintains to record a strong gross and net margin of 16% and 8%, respectively. In comparison, TGUAN’s 5-year average gross and net margins were 14.7% and 6.5%, respectively.
The table below provides a breakdown of the plastic and F&B segments’ performance, compared to prior years.
Commendable 1H2021 results as both segments show growth in revenue, coupled with stronger margins achieved.
CORPORATE UPDATES
On 12 August 2021, Prudential emerged as a new substantial shareholder of TGUAN. Prudential acquired 18.96m shares or a 5% stake in TGUAN at an average purchase price of RM2.44.
Prudential is now the second-largest shareholder after Foremost Equals Sdn Bhd, owned by TGUAN’s Managing Director, Datuk Ang and his siblings.
VALUATION UPDATES
With reference to TGUAN’s latest 1H results, we have adjusted our earlier projection on the Group’s FY2021 full-year results, as below.
Assumptions:
At the closing price of RM2.90, TGUAN is valued at 12.2x PE multiple based on our base-case assumption that the Group close FY2021 with a full-year profit of RM93.9m (1H2021 net profit was RM47.2m).
In terms of dividends return, investors can expect a 1.5% – 3.5% annual yield, depending on its payout ratio. In previous years, the Group’s payout ratio was between 20% – 40% of its annual net profit. We expect the payout to remain about the same.
Overall, we like the company’s fundamental, management track record and its prospects. Despite the pandemic in FY2020, the business proved to be resilient for being able to record a historic high revenue and profit of RM960m and RM75.5m, respectively. For FY2021, the Group is expected to break the RM1bn mark in revenue for the first time in its history.
In our view, the current valuation of 12.2x PE multiple remains reasonable with decent upside potential. Historically, the Group’s valuation ranged between 10x – 15x PE multiple. We opine that the Group deserves a premium valuation compared to the past for its aggressive expansion plans ahead.
In recent briefings, the management has laid out the next RM1bn blueprint for all to see (target to achieve in FY2026). The management has committed up to RM50m capital investments p.a., over the next 5 years to achieve the same.
Several key catalysts to the Group’s prospects include:
- Expanding production capacity;
- A growing portfolio of higher-margin products i.e. premium stretch films, etc;
- Rebound in demand for PVC food wraps (severely impacted by the pandemic); and
- Increasing orders for messenger/courier bags.
p.s. It took the Group 80 years to achieve its RM1bn mark
https://klse.i3investor.com/blogs/The1994Investor/2021-09-06-story-h1570757094-TGUAN_Wrapping_Up_FY2021_In_Fashion.jsp
