3QFY19 revenue marginally higher but slips back into red

TWPH’s 3QFY19 revenue increased by 2.3% yoy but decreased by 10.0% qoq, while revenue in line with our expectation, 9MFY19 revenue accounted for 71.7% of our forecast, the Group’s FY19 profit likely to disappoint, given 9MFY19 loss after tax of RM0.4m against our estimate of RM10.0m. The growth in revenue yoy was mainly due to the increase in sales under one of the major customer’s contract while lower revenue qoq was due to lower demand in certain cigarette brand printed by its Vietnam operations.

3QFY19 hit by write-down tooling and termination compensation in Dubai

TWPH slips back into red, posted net loss of RM1.0 compare to RM1.8m in previous quarter 2QFY19. The operational improvement was attributed to higher revenue and continued improvement in efficiencies as the Group completed its new production footprint. Operation profit down 65.5% yoy and down 76.4% qoq, the lower profit was mainly due to the cost incurred to compete in the Middle East market and the provision made to streamline Dubai's operations. Expectation of margin improvement did not materialize and cost could be higher than expected for the group to compete in Middle East market thus we maintain our FY20 estimates until clearer earnings visibility in the coming quarters.

Management expect performance to recover by 2020

Management guided that with the completion of relocation costs from Indonesia, Vietnam, and Dubai and closure costs from Australia, the Group is set to recover in 2020, nonetheless given the challenging outlook of the Tobacco industry the Group serve, we maintain our Sell recommendation at RM 0.94 pegged at P/E of 13.0x of FY20F EPS for TWPH.

Source: Mercury Research - 15 Nov 2019