Turning Over A New Leaf
To analyse Tomypak, one may consider segregating its financial performance before and after 1 January 2015, the point when new Managing Director Mr Lim Hun Swee took over the leadership of the company.
Tomypak's margin had actually surpassed that of Daibochi's, one of its closest local competitor, since 4Q14, after Mr. Lim Hun Swee was redesignated from a non-executive director in Tomypak to an executive director on 13 August 2014.
Margin (%) | Daibochi | Tomypak | Difference (% pts) |
4Q14 | |||
Operating | 8.17 | 9.17 | 1.00 |
PBT | 8.49 | 8.88 | 0.39 |
PATAMI | 7.03 | 7.38 | 0.35 |
1Q15 | |||
Operating | 9.05 | 14.78 | 5.73 |
PBT | 9.46 | 14.54 | 5.08 |
PATAMI | 7.18 | 10.22 | 3.04 |
2Q15 | |||
Operating | 10.71 | 15.95 | 5.24 |
PBT | 10.64 | 15.91 | 5.27 |
PATAMI | 8.02 | 11.69 | 3.67 |
Without gross profit being disclosed by both companies in their quarterly results, no comparison could be made between their gross margin, distribution expenses and administrative expenses in FY15 until the release of their FY15 annual reports in 2Q16.
Peer Comparison
Daibochi | Tomypak | Winner | |
Market Cap (RMm) | 506.6 | 261.6 | Daibochi |
1H15 Operating Margin (%) | 9.90 | 15.35 | Tomypak |
PE ratio (annualised FY15 earnings) | 18.9 | 11.7 | Tomypak |
Dividend Policy | 60% | 40% | Daibochi |
Dividend Yield (%) (annualised FY15 dividend) | 3.37 | 3.35 | On par |
ROA (%) (annualised FY15 earnings) | 8.95 | 12.99 | Tomypak |
ROE (%) (annualised FY15 earnings) | 15.59 | 19.34 | Tomypak |
Net Gearing (%) | 35.29 | 3.33 | Tomypak |
Capacity Expansion | ? (Existing production floor space 460k) | Tripling its capacity from 17,500MT to 52,500MT | Maybe Tomypak |
Utilisation rate | 60% | 80% | Tomypak |
Average daily share trading volume (for past 1 year) | 46.637k | 197.62k | Tomypak |
Except for bigger market cap and higher dividend policy, Tomypak is a clear winner. It is more efficient in term of operation (operating margin), asset utilisation (ROA), capital utilisation (ROE), having healthy balance sheet (net gearing), and possibly better growth potential as Tomypak is expanding its capacity. And yet, Tomypak's PE ratio is just almost half of Daibochi's
Right Price, Right Business, Right Management?
Price
Tomypak appears to fulfill the 3-Rights, right price, right business and right management, the 3 core criteria used by Yeoman Capital Management in stock selection.
Being a proxy to the F&B sector and being traded below 12 times PE multiple, the share price of Tomypak is undemanding compared with its closest local competitor, Daibochi, which being traded at about 19 times PE multiple, and other F&B companies. The undergoing plant expansion also provides growth potential.
Business
Flexible packaging is deemed to be a resilient business, especially when almost all of Tomypak's products are catered for F&B players. Its clients include:
The demand for F&B flexible packaging is expected to remain pretty stable despite uncertainties in the economic outlook.
Management
The turnaround in Tomypak's financial performance could be attributed to the change of stewardship since Mr. Lim Hun Swee took over the management of the company. Mr Lim is a veteran is the F&B sector. He set up In-Comix Food Industries Sdn Bhd in 1989 before disposing the company in 2009. Mr. Lim was previously employed as a Managing Director by Grand United Marketing Sdn. Bhd. and a Managing Director by Taste N Tasty Food Industries Sdn. Bhd. Currently, he is an executive director in Johotin which involves in F&B and can businesses. He is said to be instrumental in reviving Johotin which diversified into F&B business in 2011.
He has set an interesting target of overtaking its competitor Daibochi in term of market cap in 3 years time.
Mr Lim has 15.35% ownership in Tomypak (1 Oct 2015) whereas Mr Lim Soo Koon, Daibochi's Managing Director has only 0.16% ownership in Daibochi. Tomypak is closer to owner-management while Daibochi is run by a professional manager.
Target Price
Given the industry Tomypak is in, its financial ratio, peer comparison, growth prospect, trading at PE multiple of 12 times doesn't appear demanding.
I leave it to you to imagine the potential target price of Tomypak based on:
i) Reasonable PE multiple it should be traded at; and
ii) Its growth potential (whether it can secure sufficient orders after tripling its capacity)
iii) Whether margin could be maintained
Potential catalysts:
i) PE multiple re-rating
ii) Potential earnings growth from plant expansion
iii) Possible premium if Tomypak overtakes Daibochi to be local market leader in flexible packaging
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