I like tomypak.
Plastic packaging still a defensive package
Business & Markets 2013
Written by theedgemalaysia.com
Thursday, 04 April 2013 11:17
Plastic packaging
overweight: The flexible plastic packaging sector continues to outperform this year after a strong 2012. We continue to like the sector’s defensive and resilient business, supported by dividend yields. The sector remains an “overweight”.
Long-term sector growth prospects in flexible plastic packaging (FPP) will come from the export markets and the non-food and beverage sector. Even after its recent outperformance, sector dividend yields are attractive at 5% to 6%. Daibochi Plastic and Packaging Industry Bhd remains our top pick. Securing new major export orders could further catalyse the sector.
The sector continues to outperform the market this year, probably as a result of its defensive business. Ninety per cent of its revenue comes from the resilient food and beverage sector. In addition, the sector is not directly affected by political risks.
Long-term growth prospects for the sector would come from the export markets in Asean. Australia also looks interesting in view of the industry consolidation there in mid-2012.
In addition, there is an emerging trend for developed countries to look to Asean to seek lower-cost, quality producers to meet their flexible packaging needs.
Both Daibochi and TOMYPAK HOLDINGS BHD [] pay dividends on a quarterly basis. Daibochi pays out at least 60% of its net profit while Tomypak maintains a minimum 40% payout ratio. Even after the outperformance in the past year, sector dividends remain attractive at 5% to 6%.
Despite uncertain equity market conditions given the imminent general election, we continue to like the sector’s defensive and resilient business supported by its dividend yield. The sector remains “overweight”. We maintain our earnings per share forecasts and “outperform” calls for both Daibochi and Tomypak.
Daibochi’s target basis remains unchanged at 10.6 times calendar year (CY14) price-earnings ratio (PER), a 20% discount to our market PER target. Tomypak’s target basis is maintained at 7.4 times CY14 PER, based on an unchanged 30% discount to Daibochi’s target PER. — CIMB Research, April 2