2QFY21 CNP of RM26.2m brought 1HFY21 CNP to RM48.8m, which is above our expectation, at 56% of full-year forecast. 1HFY21 DPS of 2.0 sen is in-line with our estimate. Moving forward, we expect ASPs to remain elevated @ June levels supported by the robust demand for its premium products. As ASPs are falling slower than expected, we raise FY21E CNP by 6%. We also raise FY22E CNP by 6% for newly-planned capacity expansion. Reiterate OUTPERFORM with new TP of RM3.70 (from RM3.38) at 14x PER on FY22E EPS of 26.4 sen.

1HFY21 CNP above estimates. 1HFY21 revenue/CNP of RM589.4m/RM48.8m above our expectation, at 54%/56% of our full-year estimate. 2QFY21 DPS of 1.0 sen brought 1HFY21 dividend to 2.0 sen, in-line with our FY21E DPS of 4.5 sen.

YoY, revenue rose 25% to RM589.4m, thanks to: (i) elevated ASPs, and (ii) higher sales volume from the plastic packaging, F&B and other consumable products segments. Operating profit rose 32% due to a better product mix. All in, CNP rose by 32%.

QoQ, revenue rose by 9% to RM307.3m from RM282.1m mainly due to: (i) elevated ASPs, and (ii) higher sales volume of plastic packaging and F&B products, likely driven by greater sales premium stretch film and premium blown film. Operating profit rose by 21% due to better product mix and operational cost efficiencies. Despite a higher effective tax rate of 22% (vs. 1QFY21: 19%), CNP rose by 16%.

Outlook. While resin prices have largely remained flat as of late, we believe that ASPs will remain elevated relative to June levels, driven by the strong demand for their premium products. We continue to like TGUAN for: (i) the robust demand for its premium products, and (ii) capacity expansion to continue fuelling long-term growth. We gather from management that TGUAN is currently operating at >80% utilisation rate in order to cater for the strong demand for its stretch film, premium blown film and courier bags. Once lockdowns are lifted and economic activities resume, the construction of its 16-acre (currently c.80% completed) new factory should resume and TGUAN will be able to continue their planned expansion. More importantly, c.95% of TGUAN’s workforce has been fully vaccinated, thus, TGUAN has recently resumed to operating with 100% of its workforce.

Increase FY21E/FY22E estimates. We increase FY21E revenue/CNP by 1.8%/6% to RM1.1b/RM92.6m to account for a slower-than-expected decline in FY21 ASP. We also raise FY22E revenue/CNP by 4%/6% to RM1.2b/RM100.6m to account for the new expansion plans (6th Nano Stretch Film line). We maintain FY21E/FY22E DPS of 4.5 sen/5.0 sen yielding 1.6%/1.8%

Reiterate OUTPERFORM with a higher TP of RM3.70 (from RM3.38) based on FY22E EPS of 26.4 sen and an ascribed PER of 14x (from 13.5x), which is +1.5SD to its 5-year mean of 9.7x. We believe TGUAN deserves a valuation premium for the sustained strong demand for their products and their long-term growth plans.

Risks to our call include: (i) faster-than-expected ASP declines, (ii) foreign currencies fluctuations, (iii) labour shortage and (iv) lower-than-expected margins.

Source: Kenanga Research - 27 Aug 2021