Friday, August 21, 2015

Tomypak: Profits Up but Revenue Down!

Background

In May, I posted on Tomypak regarding its upside breakout at RM1.50. The stock rallied to a high of RM1.89 before consolidating between RM1.55 & RM1.85 for the next 3 months. Now, let's look at the latest results. 

Results Update

For QE30/6/2015, Tomypak's NP improved by 9% q-o-q or 614% y-o-y to RM5.8 million while revenue dropped by 4% q-o-q or 3% yo-y to RM50 million. PBT apparently improved due to the better sales mix and production efficiency. These are the same reasons given for the improvement in the immediate preceding quarter (QE31/3/2015).


Table 1: Tomypak's last 8 quarterly results

Comparison with Daiboci

When we compared Tomypak's P&L with Daiboci's, we find that Tomypak's revenue has declined in the past 8 quarters while profits shot up in the past 4 quarters. This is not a good sign- the declining revenue. And, I am not convinced that "better sales mix and production efficiency" are the reasons for the improved bottom-line. I think Tomypak is a beneficiary of the weak MYR. This was the reason given by Daiboci for its improved profitability. What would happen to Tomypak once the MYR strengthens?! I think its high profit margin could drop significantly. A declining margin coupled with a declining sales could lead to a sharp rollback of its profits.


Chart 1: Tomypak & Daiboci's last 31 quarterly results

Valuation

Tomypak (closed at RM1.74 yesterday) is now trading at a fairly attractive PER of 11 times (based on last 4 quarters' EPS of 15.6 sen). In addition, Tomypak pays a decent dividend, with yield at 3.4%.

Technical Outlook

After the upside breakout in May (noted above), Tomypak tested its all-time high at RM1.90 (ignoring the spike to RM2.10). A bullish breakout of a 5 years old consolidation pattern should lead to a powerful move. A retest of the RM1.90 is a possibility.

 
Chart 2: Tomypak's monthly chart as at Aug 20, 2015 (Source: ShareInvestor.com)

Conclusion

Based on improved financial performance, attractive valuation and positive technical outlook, I would rate Tomypak a HOLD. It is a good stock for swing trading as it moves within the range of RM1.55-1.85. However, I am concerned about the sustainability of Tomypak's financial performance in the event our MYR strengthens.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Tomypak.

7 comments:

Malaysia Stock Talk said...

My observations:

1. Tomypak's has better margins than Daibochi at least for the 3 most recent quarters.

2. If sales volume is expected to trend downward, I wonder why Tomypak is building a new plant that may possibly triple its capacity (previously mentioned in The Edge article if I remember correctly)? The construction work has started this month, as stated in the notes to the quarterly results.

Alex Lu said...

Hi Malaysia Stock Talk


CIMB in its 1QFY2015 Results Note for Tomypak has highlighted these points:

1) Since mid-2013, Tomypak’s quarterly revenue has been on a downtrend and as such, we were surprise at its sharp profit margin recovery since 3Q14 results.

2) Its 1Q15 cash flow statement shows that the company invested RM12m in capex, likely for the purchase payment for 10.4 acres of industrial land in Kulai, Johor (RM11.7m). We estimate that it might need to borrow another RM15m-20m for new machinery.

Your point with regards to the investment is valid. Why expand your capacity when your sale volume is actually shrinking?!

As the mystery deepens, we have to be cautious on this stock.

Malaysia Stock Talk said...

I would like to think otherwise... I prefer Tomypak to Daibochi... Wish me luck...

Malaysia Stock Talk said...

The drop in revenue could be due to adjustment to selling price asked by its clients after the prices of raw materials have dropped quite a bit

Alex Lu said...

Hi Malaysia Stock Talk

Thank you for the information on the decline of revenue number. This company is tracing out the same peculiar pattern that was seen in Daiboci in FY2012 (see link below).

Daiboci's revenue rose in FY2013 & FY2014 (from RM279M to then RM311M & RM345M) but its earnings remained relatively unchanged (from RM25M to RM28M & then RM24M). Nonetheless the share price rose from RM2.50 to RM4.50.

Tomypak crossed the RM1.85-1.90 resistance as well as the RM2.00 psychological resistance early last week. Let's hope it can duplicate the success of Daiboci.

http://nexttrade.blogspot.my/2012/10/daiboci-bottom-line-increased-despite.html

Malaysia Stock Talk said...

Made a comparison between Daibochi and Tomypak

http://www.bursastocktalk.blogspot.my/2015/10/tomypak-turning-over-new-leaf.html

Alex Lu said...

Hi Malaysia Stock Talk

I have read your comparison between Daibochi and Tomypak. I have to say that the stock looks good- on paper. The fact that the share price has rallied substantially is proof that you could well be right.

Still, one can't help wonder in these days of dog-eats-dog world, one can find a company that earns more by doing less. Of course this has happened before to Daibochi, which I had posted on. Let's hope that the same phenomenon will work out well for the shareholders of Tomypak today as it did for the shareholders of Daibochi a few years back.

Thank you for sharing.