New Toyo

[Curiousparty]

Tien Wah just released its Q2 results. As expected, the results were terrible.
Half-yearly EPS has dropped to 9.41 (sen) from 16.65 (sen) or 44% DROP.
Interim dividend has also been cut to 3 (sen) from 7.74 (sen) or 61% DROP

Since New Toyo is largely dependent on Tien Wah for a large segment of its revenue/profit, we can expect the results for New Toyo to be quite bad as well, and we should be prepared for a possible dividend cut.

The "unsustainability" of tobacco printing/packing has been explained earlier - printing volume reduction without a compensating pricing adjustment mechanism, unlike the big tobacco companies.

[Curiousparty]

New Toyo Q2 result is out. Net profit (to equity holders) dropped 35%!! 1st half of FY14, net profit dropped 36% compared to FY13.

Interim Dividend has been cut by 25% to only 0.6 cents. I expect full year results to be bad as well, and hence full-year dividend is very likely to be cut.

" The outlook for the Group remains challenging with the changing legislative environment as well as excise duty changes in some of the markets we operate in. This contributed to a change in product mix and the lower gross profit margin. The Group will increase efforts to improve operational efficiencies and business development in our
core businesses as well as explore opportunities for diversification. " (extract from 2Q 2014)

This is the key risk of being over reliant of just BAT for business. If Tien Wah/New Toyo cannot lower its cost structure in response to BAT's demand, BAT will just switch to lower cost printers else in Asia Pacific. BAT also plays its game smartly. If New Toyo can diversify its risk, BAT will also diversify its risk by not just being reliant on a single printer in Asia Pacific.

Beside the riot in Vietnam what else in your post has changed in past 2 months? Certainly not the NAV, excluding these 2 months PnL

IMHO we need to be objective on what has changed rather than have a selection bias.

Agreed.

Looking at the concentration and number of elaborate posts on this stock and a few other specific counters, I am not sure of his motives, but it seems like CuriousParty just seems to be just interested in panning this stock and spruiking CES.

So long as New Toyo continues to be generous with dividends and works with BAT, I am pretty much happy with the cashflow into the company. Much like UMS/AMAT relationship NT/BAT relationship could be very good for shareholders in the long run. Stock is still at a discount to NAV and net cash so there is still room for upside, at least for the next couple years.

-vested-

[greengiraffe]

U really eat full too free leh... I have already told you too many times that noone knows the company except insiders themselve...

The real play is on the tobacco companies. They are expensive for their own reasons.

Simply buy the Best, forget the rest, the rest are pest.

Odd lots vested
GG

[Louhan]

U really eat full too free leh... I have already told you too many times that noone knows the company except insiders themselve...

The real play is on the tobacco companies. They are expensive for their own reasons.

Simply buy the Best, forget the rest, the rest are pest.

Odd lots vested
GG

Mr GG,
Can share your advice on the best counters to invest in? Then I can ignore the pests. Thanks.

[Curiousparty]

New Toyo might be Gold at prices below 20 cents.
At current price, it might be pest.

And it is very strange that management cited "legislation and tax excise as reasons for poor performance" because as long as u are in tobacco printing/packaging, all these tobacco-related regulations are part and parcel of business operations/risks.

Why didn't the company diversify earlier knowing well that plain packaging will come into play? Why didn't the company go into China to vie for some share of the market?
(look at Tat Seng Packaging, it is going from strength to strength)

Simply buy the Best, forget the rest, the rest are pest.

[valuebuddies]

What Tat Seng has to do with New Toyo? A success of a company not depending on where you are operating in but what you are dealing with, I have not actually counted but I am not surprise that cost of running a factory in Vietnam is cheaper than having the same plant in China, but are there any big demand for tobacco printing in China? Time is more important than price, and I think that the time is not right yet for New Toyo.

[Curiousparty]

Tien Wah has also announced its plan to transfer one printer from Australia to Vietnam, and will only be completed by the end of Q3. The transfer will not immediately reduce the cost structure as explained by Tien Wah below:-

(extract)
"The STGPM is not expected to have a material financial effect on TWPH’s share capital, substantial shareholders’ shareholding, gearing and consolidated earnings of the Group for the financial year ending 31 December 2014. However, it will improve the Group’s strategic positioning to service customers and reduce operating cost over the longer term."

So, the worst for Tien Wah/New Toyo has yet to come because of the possible down time and cost of transfer, etc.
Plus Tien Wah is starting to increase its capex spending again. 1st half of 2014 has seen capex spending of $14mil (RM) compared with only $6mil (RM) in 2013.
This is another sign that final dividend is likely to be further reduced.

What Tat Seng has to do with New Toyo? A success of a company not depending on where you are operating in but what you are dealing with, I have not actually counted but I am not surprise that cost of running a factory in Vietnam is cheaper than having the same plant in China, but are there any big demand for tobacco printing in China? Time is more important than price, and I think that the time is not right yet for New Toyo.

[Curiousparty]

This does not seem to gel with the GPM seen in Amvig which operates tobacco printing/packaging in China.

http://www.amvig.com/eng/ir/highlight.htm

Its GPM is ~30% while Tien Wah is struggling at ~20%.

What Tat Seng has to do with New Toyo? A success of a company not depending on where you are operating in but what you are dealing with, I have not actually counted but I am not surprise that cost of running a factory in Vietnam is cheaper than having the same plant in China, but are there any big demand for tobacco printing in China? Time is more important than price, and I think that the time is not right yet for New Toyo.

[Curiousparty]

With so much cash reserve as of 2Q 2014 ($62mil or 14 cents), one naturally wonders why the company did not declare any special dividend or increase its regular dividend, much to the anguish of minority shareholders and the numerous speculations that the company can easily pay out special dividends (Pls see previous next in sight article by a New Toyo Investor)

http://www.nextinsight.net/index.php/sto...nd-to-come

If we take the case that the company has "legitimate" use for the cash (which was actually from the divestment of SAH), how kind of business can the company venture into, without too much risk?

The most profitable segment of the tobacco business is already taken up by the Big Tobacco, leaving the crumbles like tobacco printing to other companies like Tien Wah and New Toyo.
What else of the tobacco value chain can the Big Tobacco outsource ? if it is really highly profitable, won't the big tobacco keep the business for themselves, rather than "outsource" to save costs?

Given the past folly and mediocre track record of New Toyo in its foray into tissue paper business (destroying more than 20cents of EPS in the process) and tobacco printing/packaging, let's hope that New Toyo will be more savvy this time round. If not, it is still better to return hard cash to investors via a "capital reduction" exercise.

[Curiousparty]

Hi Portuser

On further reflection, I feel that it is NOT CORRECT to adjust the NAV as suggested by you.

The fact is that without the rights issue, New Toyo would not have been able to proceed to secure the 7-yr contract with BAT.

Hence, we should include the dilution impact (due to the rights issue), rather than to "adjust" the NAV upwards to remove the dilution impact.

Hence, my former argument stands, i.e. there is no shareholder value created from the point of view of equity holder in New Toyo.

NAV is analogous to "GDP per capita" concept while shareholder's equity is akin to "absolute GDP $".

We need to look at both in most cases. But for this case, NAV is the better measure from each unit of share's pt of view.

Views appreciated pls. tks.

Equity per share or roughly NAV has remained the same pre and post BAT contract.
Pre-BAT contract
2005 - 35.34 cents
2006 - 34.61 cents
2007 - 38.90 cents
Pre-BAT contract, Ave NAV = 36.3 cents

fast forward (post- BAT contract)
2011 - 36.49 cents
2012 - 36.57 cents
2013 - 35.64 cents
Post-BAT contract, Ave NAV = 36.2 cents

Based on NAV, there is in fact NO shareholder value creation from the BAT contract (IMHO).

The 3-for-5 rights issue, at a low price of 12 c per share in 3Q 2010, enlarged the number of New Toyo shares from 275m to 439m, and caused NAV per share to plunge from 47c to 34c.

2007 NAV of 38.90c in Curiosparty's post is based on the number of New Toyo shares before the right issue; whereas 2013 NAV of 35.64c is based on the enlarged number of shares.

Fair comparison requires both NAVs be based on a common number of shares; and such adjustment will result in a NAV of 24.3c (38.9c divided by 1.6) for 2007.

The average NAV per share between 2005 and 2007 is therefore 22.9c, 13c lower than the average of 36.2c for the recent three years.

The increase in shareholder value can be demonstrated in a more direct way.

Shareholder fund stood at $157m as at 31 Dec 2013, $ 47m higher than Dec 2008, when the exclusive BAT printing contract came into being.

Between 2009 and 2013, New Toyo paid $45.6m in dividends.

Shareholders contributed $19.5m during the rights issue in 2010.

Value enhancement therefore amounts to $ 76m (=50 + 45.6 – 19.5).

Whether the $76m enhancement represents sufficient return to individual shareholders or not is another matter altogether.