Thong Guan Industries is guided for improved demand as its customers restock ahead of price hikes amidst the rising cost of input resin. It has since 4QFY23 seen improved sales in Europe, and is stepping up its marketing efforts in the US. Broking house Kenanga is maintaining its forecasts with a TP of RM2.86 and OUTPERFORM call.
The house said post-results engagement with TGUAN it felt reassured of its prospects. Key takeaways include improved demand for its plastic packaging products as its customers see the urgency to restock ahead of price hikes amidst rising cost of input resin. Stretch films and industrial bags, which made up about 50% and 17% of its FY23 total revenue, respectively, will remain the main drivers. There is strong demand for nano stretch film in overseas markets such as the US, South Africa
and South Korea, while the sales of industrial bag will be boosted by new product offering from its new premium blown film lines, as well as shrink film and stretch hood.
The group has since 4QFY23 seen improved sales in the UK, Germany and the Scandinavian region which typically offer better margins. Meanwhile, in the US market, TGUAN is stepping up its efforts to secure new customers for its premium products (such as nano stretch film), including the hiring of local sales personnel in 4QFY23.
Amidst an improved demand outlook, TGUAN said it is hopeful that its plant utilisation will hit 80% by the end of the year, from 60%-70% currently. With substantial unused capacity at present, TGUAN has no major capex plan in FY24 except for: (i) an additional stretch hood line to cater to both domestic and European markets, (ii) an additional shrink film line dedicated to mineral water packaging, and (iii) a tenth nano stretch film line (which is already under installation at present).
Detailing its FY23 results, the group recorded positive volume growth in stretch film (+6%) and ndustrial bags (+4%) while contraction in garbage bags (-14%), PVC food wraps (-18%) and courier bags (-15%). The numbers suggest resilience in the shipping and logistics sector (stretch film) and the consumer sector (industrial bags which include oil bags, flour bags and sugar bags) but weakness in the ecommerce sector (courier bags).
Its staple food division (coffee, tea, noodles, etc.) grew 8% in volume driven by growing sales both locally and in Thailand.
It clarified the RM10m impairment on trade receivables in 4QFY23 came from the sales of resin to a local customer. While
TGUAN had collected part of the amount, the payment for the balance would not be immediate and as such its auditors believed it would only be prudent to make an impairment on the entire outstanding amount.
