9MFY21 CNL of RM1.6m came below our full-year expectation of a CNP of RM5.9m. The loss-making 3QFY21 was due to lower sales volume, caused by the 60% workforce limit and production disruption. No dividend was declared, as expected. We remain cautious on Tomypak’s profitability as it continues to struggle in weathering the rising resin costs and elevated freight costs. We decreased FY21E/FY22E earnings by 106%/51% to -RM0.4m/RM3m, forecasting a loss-making FY21.We downgraded it to UNDERPERFORM with lower TP of RM0.485 based on FY22E BVPS of 44 sen at 1.1x PBV, at -1.0SD below 5-year mean.

Below our expectation. 3QFY21 core net loss (CNL) of RM5.9m brought 9MFY21 CNL of RM1.6m, far below our expectation of a full- year profit of RM5.9m. The results mainly came in lower than expected due to lower revenue and higher production costs. No dividends, as expected.

YoY, 9MFY21 revenue rose 7% to RM125m driven by higher sales volume from the its local and international customers. Despite the increase in revenue, TOMYPAK recorded an operating loss of RM2.2m due to higher raw material and freight costs. Taking into account non- core items, TOMYPAK recorded a CNL of RM1.6m vs. RM0.3m core net profit in 9MFY20.

QoQ, revenue fell by 21% due to lower output and productivity, as TOMYPAK was adversely affected by (i) the 60% workforce capacity limit, (ii) temporary production halt due to Covid-19 cases, and (iii) industry-wide labour shortage issue. As TOMYPAK could not cover its gross and operating costs, it recorded a core net loss of RM5.9m.

Outlook. After the workforce limit restriction was lifted, TOMYPAK has resumed to 100% workforce capacity in early Oct. Even with the restoration of its workforce, it is currently operating at an underwhelming utilization rate of <40% (vs 2Q21: 25%-30%). We believe that the group will continue to ramp up its utilization rates to work on its backlog orders. We continue to remain cautious on its earnings as TOMYPAK could continue slipping back into the red in 4QFY21, with resin costs having risen c.20-24% since July. With thin margins, TOMYPAK is also less able to weather the elevated freight costs compared to its peers.

Decrease FY21E/FY22E estimates. We decrease FY21E revenue/CNP by 7%/106% to RM165m/-RM0.4m and FY22E revenue/CNP by 8%/51% to RM172.8m/RM3m as we adjust for: (i) lower sales and earnings in 3QFY21, (ii) higher-than-expected COGS and OPEX for TOMYPAK, and (iii) slower-than-expected recovery in FY22.

Downgraded to UNDERPERFORM with lower TP of RM0.485 (from RM0.516) by applying PBV of 1.1x @-1SD to 5-year mean based on a decreased FY22E BVPS of RM0.44. We continue to use BVPS as our valuation basis as TOMYPAK seems unable to sustain its profitability. We continue to maintain our below-average valuation to reflect its lower utilization rate compared to its peers and dim prospects ahead.

Source: Kenanga Research - 1 Dec 2021