TOMYPAK continues to focus on its core resilient business. Around 90% of the Group's revenue is derived from the recession-resilient food and beverage sector. Being a necessity item especially in food and beverage industry, TOMYPAK management believe that the demand for flexible packaging will remain strong and growing[4]. Actually what is flexible packaging? By clicking on these video (Video 1 & Video 2), i think you will be able to understand how flexible packaging works[2][3]. In short, flexible packaging is actually a package or. container made of flexible or easily yielding materials that, when filled or closed, can be readily changed in shape. The construction may be of paper, plastic film, foil or any combination of these. 

Flexible packaging is no longer perceived as a simple wrapping material, but also as a decorative, protective and presentable tool to consumers while on display in the market[1]. TOMYPAK was established in 1979, public listed in 1996 in BURSA. TOMYPAK's packaging product classifications include: premium packaging (powdered beverage), high barrier metalized packaging (seasoning, powdered beverage), hot fill packaging (mayonnaise, sauces), general packaging (confectionery, instant noodles, snacks) and specialty (pet food, detergent). There are a lot of big clients, such as, Maggi, Nestle, Mamee, Yeo's, Oriental Food Industries, Apollo, Milo, Vico, Horlicks, Ajinomoto, Babas, Lady's Choice, etc. Now, looking back at the big clients profile. Milo and Maggi, the demand is still there. That's why Mr Chairman mentioned that the demand is still there as these food are recession-resilient food and beverage.

1) Fundamental Analysis: 

TOMYPAK's revenue and net profit is not consistent. In 2014, TOMYPAK recorded a lower revenue due to decrease in demand in the local market. The net profit decreased 42% due to lower sales in local market coupled with competition in the export market and the increase in cost of production arising from higher energy and labour cost[4]. But surprisingly for 2015, the net profit spiked up 181% to RM23,162k due to better sales of mix and continuous improvement in production efficiency and FOREX gain[5]. 

TOMYPAK's dividend policy is distributing at least 40% of the net profit, promising dividend every quarter, making the DY as high as 4.09%. In the Annual Report Chairman Statement, Mr Chairman, Tan Sri Dato Seri Utama Arshad bin Ayub promised on the improvements on its existing production capacities by investing in new production machinery with higher output and more automation, improving the production process, sourcing new materials and creation of new formulations and innovative products. The improved production process include various on-going cost saving measures to reduce cost of production[4][6]. For me, these are at least the minimal actions required in order to sustain the profit of the company. In the last Quarter of 2014, TOMYPAK actually commissioned 1 unit of advance lamination machine to enhance production capabilities and reduce materials wastage[4]. They also invested in an freehold industrial land of 10.5 acres at RM11.69 million for future expansion purpose[7]. The company never shows sign of slowing down despite of the economic slow down, they are still pushing their boundaries to lead the market in the packaging industry.

TOMYPAK Rights Issue

TOMYPAK is optimistic that the demand for the group products from the food and beverage sector will still remain favourable. Recently, they had proposed rights issue with free warrants[6]. Rights issue is an activity by the company to seek help from investors for money. In TOMYPAK's case, the money will be used for business expansion. TOMYPAK is expected to raise minimum RM27.438 million to maximum RM54.734 million. Around 61% of the rights issue will be used for construction of a new factory building, 29% will be used to purchase machineries, equipment and other anciliary facilities, 9% will be used for working capital while 1% will be used for the rights issues expenses.

We can dig for more information in the Notes. Briefly summarize, the new construction of factory building is located in Mukim Senai, District of Kulaijaya, with a total built up area of approximately 265,335 square feet, which is 90% larger than their current factory (140,000 square feet). As TOMYPAK is indirectly related with food and beverage industry, their new building is designed to comply with the international hygiene and food safety standards.

TOMYPAK will have a larger and more sophisticated Research and Development (R&D) equipped with the latest computerised testing equipment. The R&D labs will be equipped with advanced technology facilities for inspection and quality control. Another key point to note, TOMYPAK plans to produce its own raw material plastic films using its own brand name. In 2016, they will develop more specialised packaging application with high quality products such as packaging for infant cereal and milk powder for local and overseas market. For me personally, R&D will add extra marks to the valuation of a company. R&D will always try to bring out the best from the product. If it succeeds, it will be a big hit in the industry.

With the finish construction of the new plant, TOMYPAK will have additional 1 production line in its new factory. Currently it is operating with 7 production lines. The production capacity will increase from 19,200 metric tonnes per annum to 24,960 metric tonnes per annum.

As for the machineries, the critical feature of the new production facilities will be the enhanced multiple-proof colour capability which makes the process faster as compared to the existing machineries. Just to name out some of the machines, such as, advanced printing machine, advanced extrusion lamination machine, slitting machine, resin mixer, paper cutter and other equipments. As for the working capital, TOMYPAK will purchase raw materials such as plastic resin, aluminium foil, plastic film, printing ink and etc. With low crude oil price, plastic resin can be bought with lower price. Of course, if the money is still not sufficient to carry out all the works, they will seek for internally generated funds or bank borrowings. Everything is written quite detailed in the Note[6].

For some rights issue calculation, one rights issue will be given for every two TOMYPAK shares held. The issue price of the Rights Shares is at RM1.00 per Rights Shares. And the rights issues subscribed will be given a free warrant. The exercise price of the TOMYPAK warrant is 2.29. To simplify, if you hold 2 TOMYPAK shares, you will be given 1 rights issue. If you subscribe the rights issue, you need to pay RM1,000 to own it and your 1 share of right issues will exchanged with a free warrant. After the rights issue, the mother share will be adjusted.

Imagine a case, if we hold 2,000 shares of TOMYPAK. TOMYPAK shares closed at 2.50 before the ex date. In the next day, our TOMYPAK (2,000 shares) price will be adjusted to 2.00 and we will be entitled with 1,000 shares of right issues. It can be identified with TOMYPAK-OR. If we were to subscribe for the rights issue (TOMYPAK-OR), we need to invest another RM1,000 to the investment bank in order to be entitled for 1,000 shares of free warrant (TOMYPAK-WA). If we do not want to subscribe the rights issue, we can sell it off in the market just like normal shares.

2) Technical Analysis:

3) Projection Analysis:

TOMY packs his right path after the rights issue?

Let's Ride the Wind and Gainvest

Gainvestor 10sai

6 March 2016

3.31pm

Sources:

[1]: http://www.tomypak.com.my/

[2]: Flexible Packaging: https://www.youtube.com/watch?v=vU4rQdy9WJM

[3]: Flexible Packaging: Packets, Sachets, Pouches, Wrappers, Stick Packs: https://www.youtube.com/watch?v=fXTKX4ms3PM

[4]: Annual Report 2014