Weak revenue, higher costs; HOLD, cut TP 25%

1Q19 results disappointed the market due to lower sales and higher- than-expected increase in raw material prices. With its relocation delayed to 3Q19 and resin prices trending up, we cut FY19E/20E/21E earnings by 61%/25%/12%. Lower TP 25% to MYR0.49 (-MYR0.16), based on an unchanged 22.3x FY20 PER, +1SD to its five-year average. Maintain HOLD due to cost headwinds despite we still expect it to chalk double- digit revenue growth.

Net loss of MYR4.3m

Excluding unrealized forex gain and ESOS expense, Tomypak reported a 1Q19 core net loss of MYR4.3m (>-100% YoY and 44% QoQ), falling short of both our and consensus estimates. This was largely due to 1Q19 revenue falling 34% YoY and 4.5% QoQ to MYR34.4m, as well as higher costs.

Low sales volume and cost headwinds

The disappointing results were due to: (i) the decline in sales volume to 2.3k mt in 1Q19 from 3.5k mt in 1Q18, as a result of a sequential reduction in sales orders from some international and local customers (but partially mitigated by an increase in sales to other international and local customers); and (ii) production stoppage for few printing lines from the on-going production line rationalisation at its Tampoi and new Senai plants. Earnings were further impacted by the increase in raw material prices, particularly film, aluminium wire and solvent.

Delays, higher resin price: cut earnings 12-61%

The delay in completion of its relocation plans from 1H19 to 3Q19 has led us to cut sales volume by 11%/16%/7% for FY19E/20E/21E (Fig. 2). Additionally, we believe earnings will continue to be adversely impacted by the increase in resin prices due to the rise in oil prices (Fig.’s 3-6). Global resin has seen a price rise of 3%-5% QoQ in 2Q19-to-date. To factor this in, we lower FY19/20/21E earnings by 61%/25%/12%.

Source: Maybank Research - 21 May 2019