Target Price: RM3.90 ↑ By Tan Jia Hui l jhtan@kenanga.com.my FY21 CNP of RM94.4m came within our/consensus’s expectation at 99%/100% of the estimate, and FY21 DPS of 5.5 sen is above our estimate. QoQ, CNP rose mainly due to higher revenue and resumption of production activities. We remain bullish on TGUAN due to its higher utilization rate and robust demand, and raise FY22E CNP by 15% to account for a favourable product mix and introduce FY23E estimates. We reiterate OUTPERFORM with a higher TP of RM3.90 (from RM3.68) at 13x PER on FY22E EPS of 30.0 sen.

FY21 CNP within expectations. FY21 CNP of RM94.4m came in line with our/consensus expectation at 99%/100% of the estimate. 4QFY21 DPS of 2.25 sen brought FY21 total DPS of 5.5 sen, which is above our estimate of 4.5 sen.

YoY, FY21 revenue crossed the RM1b mark, rising 26.5% to RM1.2b, mainly contributed by higher ASPs and higher sales volume from both plastic and F&B segments. Operating profit rose 26.5% in tandem with higher revenue and likely due to a better product mix. All in, CNP rose 19.4%.

QoQ, 4QFY21 revenue rose 10.7% on the back of: (i) increased sales volume from the plastic packaging segment, especially the courier bags, stretch film and premium packaging films, and (ii) resumption of production activities. Operating profit declined slightly by 0.3%, mainly due to higher production costs and higher depreciation charges as new machines for the courier bags segment have started commissioning. CNP rose by 7.4% to RM23m on a lower effective tax rate of 21.4% (vs. 3QFY21: 23.4%).

Outlook. Recently, geopolitical tension has driven oil prices higher and intensified global supply chain disruption, causing resin prices to increase c.10% since early 2022. Resin prices are expected to remain elevated until 1HCY22 and we gathered from management that ASPs will remain elevated in tandem with the heightened resin prices. TGUAN is currently operating at a utilization rate above 80%, as their premium products demand, namely stretch film, courier bags and other premium packaging films remains robust. Notably, its 16-acre new factory has been completed and machinery for its nano stretch film and the blown film will start running by the end of March. On the economic recovery path, we also expect its F&B segment will help to boost its top-line through e-commerce channels and marketing activities.

Post result, we increase FY22E revenue/CNP by 19%/15% to RM1.45b/RM115.3m to account for a more favorable product mix and increase FY22E DPS to 5.5 sen. We introduce FY23E revenue/CNP of RM1.75b/RM139.8m and DPS of 5.5, implying a 2.3% yield.

Reiterate OUTPERFORM with a higher TP of RM3.90 (from 3.68) based on FY22E EPS of 30.0 sen and an ascribed PER of 13x, which is +1.5SD to its 5-year mean of 9.2x. We maintain our premium valuation for TGUAN on its continued expansion in its premium products and long-term expansion 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 - 1 Mar 2022