GW PLASTICS HOLDINGS BERHAD

Takeaways from Briefing

Lower FY11 result GW Plastics recorded marginally lower bottomline of RM19.6m in FY11 compared to RM21.0m in FY10, despite a 12% increase in revenue.
Revenue of RM344.1m was due to a 12% increase in overall volume to 46,900MT from increased production capacity of stretch film, additional facilities in new factory block and higher value-add printing. Both local and exports sales recorded growth of 2.4% YoY and 19.4% YoY respectively. The lower earnings were however affected by higher raw material costs (predominantly
resin prices which accounted for over 80% of total raw material costs) in 2011.

Total borrowing rose from RM31.1m in FY10 to RM34.9m for expansion funding. Its net gearing remains comfortable at 0.12x. The group has declared its second interim dividend of 3 sen per share to bring the total dividend for FY11 to 5 sen per share, a decent dividend yield of 7%.

Expanding into printing business GW Plastics had acquired laminating machine with solvent free and solvent based capability. Its machines are the higher end flexographic printers that have lower carbon footprint (a criteria required by developed countries), more costefficient. Currently, the existing players in the region have limited capabilities in solvent free lamination. The expansion allows GW Plastics to grow from its existing surface-printed packaging market and evolve into an integrated flexible packaging provider for blown firm, stretch films and laminated structures. The lamination expansion is expected to commence operation in 3QFY12.

GW Plastics deviates itself from other plastic packaging players in Malaysia by emphasizing in blown film production and specialized in catering food and beverage (F&B) clientele. We view the expansion into solvent free lamination positively. Following a change in consumer habits and the adoption of smaller families for most households, the requirements for flexible packaging in F&B segment will be in demand. Plastics packaging is still the cheapest alternative with longer shelf life for food and beverages. We suggest a fair value of RM0.87 for GFLO, pegging valuation at a forward PE of 6x, a 20% discount of Scientex's manufacturing segment PE valuation.

Source:Jupiter Securities Research 5 March 2012