1QFY21 CNP of RM2.9m came above our expectation at 126% of our full-year estimate, as we had taken a cautious view of its recovery prospects after six consecutive loss- making quarters (from 4QFY18 to 1QFY20) and a barely profitable FY20. No dividends declared, as expected. We raise FY21E/FY22E CNP by 113%/21% to RM4.9m/RM5.2m. Hence, our TP is raised to RM0.57 (from RM0.415) on higher FY21E BVPS of RM0.45 and PBV of 1.26x (from 0.94x), which is -1.0SD (vs. -1.5SD previously) from its 5-year mean.

Surpassed our expectation. 1QFY21 CNP of RM2.9m came above our expectation, accounting for 126% of our full-year estimate. The positive bottom-line was due to: (i) better sales volume from local and export markets, and (ii) cost efficiency. We believe Tomypak, like other plastic manufacturers, has also been raising their ASPs over the quarter to catch up with the higher resin prices. No dividend, as expected.

YoY, revenue rose by 41.9% to RM46.3m (vs. 1QFY20: RM32.6m) mainly due to higher sales volume from local and international customers. The Group churned out an operating profit of RM1.9m vs. operating loss of RM5.8m in the same period last year likely due to better management cost controls and higher ASPs. CNP of RM2.9m was posted from CNL of RM4m as there was a tax exemption (vs. 1QFY20: 0.1%) due to capital and reinvestment allowances. Note that in arriving at CNP of RM2.9m from PAT of RM1.5m, we accounted for one-off items such as (i) RM0.8m of unrealised forex loss and (ii) RM0.5m of inventory allowance.

QoQ, revenue rose 25.6% thanks to (i) higher sales in both local and export markets, and (ii) relief on freight issue such as shipment delays of raw material, and containers shortage. Operating profit rose by 262.9% as operating margin rose from 1.4% to 4.1% likely due to improvement in operational efficiency and better product mix. All in, the Group was able to return to the black with a CNP of RM2.9m (vs. 4QFY20: CNL RM0.2m).

Outlook. TOMYPAK’s total capacity is currently at c.40,000MT/year. We do not expect any new capacity expansion until FY22, as we believe the Group’s focus will be on ramping up sales and utilization rates by securing new local and international customers, and developing new products. Management guided that its international clients are bringing forward their forecast requirements, likely due to the pandemic and the substantial hike in raw material prices and freight cost. Raise FY21E/22E CNP by 113%/21% to RM4.9m/RM5.2m from RM2.3m/RM4.3m. We keep our FY21E/FY22E revenue unchanged at RM173.3m/RM179.8m. We raised FY21E/FY22E CNP as we raised our CNP margin assumption from 1.3% to 3% for FY21 and from 2.4% to 3% for FY22. We raised our CNP margin estimates on the back of: (i) its ability to secure higher sales volume from MNCs and (ii) improvements in operational efficiency. No dividends expected for now. Upgrade to MARKET PERFORM with a higher TP of RM0.57 (from RM0.415) by applying PBV of 1.26x @ -1.0SD to 5-year historical average (from 0.94x @ -1.5SD) on FY21E BVPS of RM0.45 (from RM0.44) given the improvement in earnings this quarter. However, we prefer to maintain our below-average valuation until we see continued convincing signs of recovery. Upon several consecutive profitable quarters, we may look to adjust our valuation method to PER from PBV.

Risks to our call include: (i) higher/lower-than-expected resin cost, (ii) stronger/weaker product demand, (iii) stronger/weaker-than-expected product margins, (iv) labour shortage, and (v) strengthening/weakening Ringgit.

Expected Capital Gain: -0.010 1.8% Expected Divd. Yield: 0.000 0.0%

Expected Total Return: -0.010 1.8%

KLCI Index 1577.82

Stock Information Bloomberg Ticker TOMY MK Equity Bursa Code 7285 Listing Market Main / ACE Market Shariah Compliant Yes Shares Outstanding 430.6 Market Cap (RM m) 241.1 Par value per share (RM) N.A. 52-week range (H) 0.95 52-week range (L) 0.42 Free Float 34% Beta 1.1 3-mth avg daily vol: 1,016,643

Major Shareholders

NEW ORIENT RESOURCES 23.1% Lim Hun Swee 20.7% ZALARAZ SDN BHD 5.1%

Summary Earnings Table

FY Dec (RM m) 2020A 2021E 2022E

Turnover 153.7 173.3 179.8 EBIT 1.5 6.4 7.0 PBT -0.5 4.9 5.7 Net Profit/(Loss) -0.6 4.9 5.2 Core PATAMI/(LATAMI) 0.1 4.9 5.2 Consensus N.M 5.0 7.4 Earnings Revision N.M 113% 21% Core FD EPS/LPS (sen) 0.0 114 122 Core FD EPS growth (%) N.M. N.M 7.3 NDPS (sen) 0.0 0.0 0.0 FD NTA per Share (RM) 0.4 0.4 0.5 Price to FD NTA (x) 0.8 0.8 0.8 Core FD PER (x) N.M 49.3 46.0 Debt-to-Equity ratio (x) 0.2 0.2 0.2 Return on Asset (%) 0.0 1.9 2.0 Return on Equity (%) 0.0 2.6 2.7 Net Div. Yield (%) 0.0 0.0 0.0

Source: Kenanga Research - 27 May 2021