This article first appeared in Corporate, The Edge Malaysia Weekly, on May 9 - 15, 2016.
THE excitement over Tien Wah Press Holdings Bhd’s stock seems to have faded of late. Since mid-March, the share price has been hovering between RM2.36 and RM2.58. This comes after a strong rally that started in November last year and took the counter to a record high of RM3.23 per share on Jan 13.
At RM2.36 currently, implying a 26.9% decline from its high of RM3.23 on Jan 13, it begs the question as to whether Tien Wah Press’ shares are ripe for the picking for investors who are thinking of buying shares in the company.
A lure for investors would be its dividend. The company paid net dividends of 18 sen per share for the financial year ended Dec 31, 2015 (FY2015), more than double the seven sen per share given out in FY2014. Dividend yield for FY2015 worked out to 7% and represented 51% of the company’s net profit.
In February, the company established a formal dividend policy — which will see it distributing a minimum of 50% of its net profit, subject to its distributable reserves — starting from FY2016.
Its price-earnings ratio (PER) currently stands at six times, a tad lower than its Singapore-listed ultimate holding company, New Toyo International Holdings Ltd’s PER of 7.52 times.
Tien Wah Press’ subsidiaries are in the business of rotogravure and photolithography printing, packaging trading and printing of tipping paper. A large chunk of its revenue is generated from printing cigarette packaging, and one of its major customers is British American Tobacco (M) Bhd (BAT).
At present, the company has manufacturing facilities in Vietnam, Australia and Malaysia.
New Toyo International provides speciality packaging materials to the tobacco, food and beverage, wine, liquor and cosmetics industries in Asia-Pacific.
Tien Wah Press is in the midst of a rights issue proposal, which is set to raise RM48.25 million for the company. About 60% or RM30 million of the proceeds are slated for business expansion to the Middle East and potentially Indonesia.
The company has set aside RM21 million out of the RM30 million for its expansion plans in the Middle East, according to a circular to the shareholders. Its newly set up subsidiary, Alliance Print Technologies FZE in Jebel Ali Free Zone in Dubai, is finalising negotiations for a potential property and aims to commence operations in the third quarter of this year.
It is also planning to construct a factory with an office building as part of its expansion plans.
The remaining RM9 million is earmarked for its potential expansion to Indonesia. The circular states that it is exploring options to expand its operations there, but should the plan fall through, the money will be used to repay bank borrowings.
Tien Wah Press opines that its expansion to the Middle East and Indonesia will be beneficial to the company, given the attractive growth potential evident by the increase in tobacco prevalence and estimated number of daily smokers “... thus, presenting expansion opportunities for players in the tobacco industry’s supply chain, including producers of packaging materials”.
The expansion plans could be timely as fresh news flow for the media-shy company. In March, BAT’s announcement that it was shutting down its manufacturing plant in Petaling Jaya, Selangor, left many wondering if Tien Wah Press was going to be impacted by the reorganisation of its major customer.
However, in the circular, management reassures that Tien Wah Press will continue to supply to the BAT group within Asia as stated in its existing supply agreement with the tobacco player.
“Currently, Tien Wah Press serves as a regional printing partner for the BAT group in the region and the company expects its production volume for the Malaysian market to be transferred to other countries within the Asian region,” says Tien Wah Press in the circular.
Its exclusive carton agreement with BAT for Australia, Vietnam, Singapore and Malaysia was brokered together with New Toyo International in 2008. They were successful in bidding for a seven-year exclusive supply agreement, with the right to extend it for an additional three years.
The seven-year exclusive supply agreement will end in October and the three years’ extension would mean that the agreement will officially end in 2019.
Tien Wah Press’ net profit for the first quarter ended March 31, 2016, more than doubled to RM5.6 million from RM2.1 million a year ago. However, revenue fell to RM82.39 million from RM87.52 million previously.
The lower revenue was due to the change in pricing for some of its products supplied to a major customer and the impact of the deconsolidation of one Vietnam subsidiary to a jointly controlled entity.
On the other hand, its net profit was propped up by the strengthening US dollar as well as improved efficiencies within the company.
Over the past one year, Tien Wah Press’ share price has appreciated 31.4%. It closed at RM2.36 last Thursday.
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