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Saturday, February 27, 2016

Thong Guan jumps near 7% after reporting better earnings

KUALA LUMPUR (Feb 26): Thong Guan Industries Bhd saw its share prices jump close to 7% to reach a one-month high after the group reported that its net profit has surged 120% year-on-year in FY15, beating analysts' forecast.

The Kedah-based packaging group rose as much as 20 sen or 6.7% to RM3.18 earlier today, before paring down some of its gains.

At 2.34pm, the stock is still in its one-month high zone, trading at RM3.15, up 17 sen or 5.7%, for a market capitalisation of RM330.55 million.

Interestingly, both Thong Guan and its warrants, TGUAN-WA, are among the top 10 gainers across the bourse today. At 2.37pm, TGUAN-WA was up 7.89% or 15 sen at RM2.05.

Yesterday, Thong Guan announced that it has returned to profit in the fourth quarter ended Dec 31, 2015 (4QFY15), when it posted a net profit of RM15.52 million. The group registered a net loss of RM4.17 million in 4QFY14.

Its revenue for 4QFY15 also improved 17.21% to RM195.72 million from RM166.98 million a year ago.

For the full 12-month period (FY15), its net profit jumped 120% to RM38.5 million from RM17.48 million in FY14, although revenue slipped 3.8% to RM712.09 million from RM740.23 million. The group also declared a final dividend of 9 sen.

In a note to clients today, CIMB Research said the group's full-year net profit was 58% above its forecast and 34% above consensus', mainly due to higher-than-expected profit margin expansion from a strong US dollar.

"It benefited from export revenue, which is mainly in US dollar, while costs like labour and electricity are in ringgit," it added.

The research house also estimated that the group's 33-layer nano layer stretch films plant, which has been begun operations early this year, will generate around RM150 million to RM180 million in annual revenue.

"The revenue is depending on raw material prices. Profit margin from this nano-layer film is much higher, above 10% compared to 5%–6% for traditional stretch films," it highlighted.

As at the end-December, the group's net cash stood at RM52 million. The group is also completing its RM100 million capital expenditure programme at the end of this year, which will see its annual production capacity rise from 120,000 tonnes to 170,000 tonnes.

As such, CIMB has maintained its "add" call on Thong Guan, with a target price of RM3.20. Potential re-rating catalysts include continued profit margin expansion and strong sales of its nano stretch films, it added.

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