Saturday, November 30, 2013

Thong Guan Good For Long Term

Thong Guan was founded by the late Ang Thong Guan with a mere Capital of $50.
Established in 1942 as a tea merchant under the 888 brand name and also in the business of  packaging, the company has grown well over the years. Its base is in Kedah where it has 30 acres of factory land.

Today the company is one Asia Pacific's largest plastic packaging companies. Its main products are : cast pallet stretch film and garbage bags. To a small extent, it is also a trader in tea, coffee and biscuits. 

In the latest quarter ended 30.9.13, the company reported EPS of 10.51 sen. This is a big jump from the previous quarter of 5.05 sen. 

In the corresponding period of 2012, its EPS was only 5.65 sen. The management attributed this improvement in profits to better margins and higher demand for its products. Appended below is an extract from its filing with Bursa regarding its prospects going forward:

Current year prospect
The Group's stretch film division which was boosted by the full production of two new European cast stretch film lines last year has seen the increase in production volume, margin has also improved especially in the third quarter due to the group's efforts to focus on more value added products.
The PVC food wrap division had seen continuous improvements in profitability since the full operations of the second line last year. The group is expanding its operations further with the installation of 2 new lines which is expected to be commission in the first quarter of 2014.
The Group's new subsidiary company, TGSH Plastic Industries Sdn Bhd has continued to improve on its bottom line with its more aggressive pricing strategy and contributions from newly installed machineries. Its operations will be further expanded as well. Its garbage bag divisions in both Malaysia and China has continued to be profitable while the industrial bags division in Malaysia has witnessed marked improvements in the third quarter. There are plans to further expand the operation of this division.
The Group's compounding division which was expanded last year has continued to be consistent, contributor to profitability. New machineries will be installed before the year end and early next year to further increase its production output. The Group's operations in Sabah has also been profitable as well.
The food, beverage and other consumable business unit has continued to grow and is expected to continue its steady progress despite suffering a drop in profitability this year. The Group is confident of the continuous progressive contributions from its business units and has chartered further growth prospects.

The stock was lasted at RM1.80 per share. It has a solid balance sheet with little borrowings. The dividend for last year was 7 sen. I expect this dividend to be improved to 9 sen for fiscal year 2013. This will give a dividend yield of 5 sen if you buy it at RM1.80 per share.

For those who wish to buy and hold, this stock merits consideration.

As usual, you buy at your own risk.