New Toyo

[Curiousparty]

New Toyo/Tien Wah are still not getting their feet in the 3rd largest tobacco market in the world....

*********
Amcor Tobacco Packaging Announces Plans to Build Greenfield Plant in Indonesia

Amcor Tobacco Packaging today announced plans to build a tobacco packaging plant in Indonesia. The production facility is expected to be fully operational in East Java by late 2015.

Indonesia is the third largest tobacco market in the world, and the second largest market in Asia, with tobacco cartons predominately supplied by in-house printers. As Asian tobacco manufacturers move toward outsourced supplier models in order to focus on their core tobacco business, Amcor's

presence in Indonesia will offer new contingency options to the tobacco industry and will introduce strong innovation capabilities to serve the market's increasingly complex packaging needs.

Over the past three years Amcor

Tobacco Packaging has grown its market share in Indonesia by supplying packaging from the company's existing sites in Asia, including Korea, Malaysia, the Philippines and Singapore.

In making the announcement, Amcor

Tobacco Packaging President Peter Konieczny said, "Amcor

will be the first international tobacco packaging player to establish a manufacturing presence in Indonesia, bringing new jobs, technology, and innovation to the country. This move underscores Amcor's

long-term commitment to grow with its customers - especially in emerging markets - and to contribute to the Indonesian economy."

In addition to serving the Indonesian market, this plant will also produce for export markets, offering in-line flatbed, rotary gravure, and off-line capabilities to a network of customers across Asia.

[BaconFTW]

http://infopub.sgx.com/FileOpen/20141113...eID=324522


I think not all is lost for new toyo. Their subsidiary just announced an extension of supply agreement of one year with BAT. More details at the sgx announcement.

Was also reading BAT's AR for 2013 where they seem to see rising tobacco sales in asia-pacific. In general, smokers are decreasing in numbers in developed countries, but asia-pac doesn't really count as developed except maybe singapore. In any case, even if tobacco industry does go down, then NT mgt will need to search for new revenue streams for their pcl business (which is probably the more profitable biz). I am cautiously optimistic that they can do it since its a matter of finding the contracts. NT's revenue has actually increased yoy which kinda suggests to me that they are adept in doing so. The problem now is to keep cogs under control or just find more profitable contracts.

(Vested)

[Curiousparty]

Three points.

1. There is rising sales for Asia Pacific but these markets are not where New Toyo/Tien Wah are dominating. These markets are mainly served by Amcor (China, Indonesia, The Philippines). Maybe Tien Wah/New Toyo are taking the crumbles from the rest of Asia Pacific where industry volume is declining.


2. Next, the higher revenue was due to trading segment and not due to real increase in revenue due to PCL segment where the profit margin is the highest. In fact, profit margin dropped.

(extract from New Toyo Q3)
The Group's turnover increased by 12.8% to SGD78.01 million in Q3FY2014 (SGD69.15 million in Q3FY2013) mainly due to
higher revenue in Trading division partially offset by lower revenue in Printed Cartons and Labels division.
Gross profit was SGD9.98 million in Q3FY2014 compared to SGD12.58 million in Q3FY2013. Gross profit margin in
Q3FY2014 decreased to 12.8% compared to 18.2% in Q3FY2013. The change in sales mix contributed to the lower gross
profit margin.
The Group's profit before tax decreased by 32.8% to SGD4.70 million in Q3FY2014 (SGD6.99 million in Q3FY2013). This
was mainly attributable to lower gross profit.

3. Need to be aware that the supply contract with PMI for the specialty paper was only a 2 + 2 (option). There is also no assurance that New Toyo can secure the next round. They are at the mercy of their buyers (i.e. PMI).

http://infopub.sgx.com/FileOpen/20141113...eID=324522


I think not all is lost for new toyo. Their subsidiary just announced an extension of supply agreement of one year with BAT. More details at the sgx announcement.

Was also reading BAT's AR for 2013 where they seem to see rising tobacco sales in asia-pacific. In general, smokers are decreasing in numbers in developed countries, but asia-pac doesn't really count as developed except maybe singapore. In any case, even if tobacco industry does go down, then NT mgt will need to search for new revenue streams for their pcl business (which is probably the more profitable biz). I am cautiously optimistic that they can do it since its a matter of finding the contracts. NT's revenue has actually increased yoy which kinda suggests to me that they are adept in doing so. The problem now is to keep cogs under control or just find more profitable contracts.

(Vested)

[Curiousparty]

Do u know why the extension was for a miserable one year only?

http://infopub.sgx.com/FileOpen/20141113...eID=324522


I think not all is lost for new toyo. Their subsidiary just announced an extension of supply agreement of one year with BAT. More details at the sgx announcement.

Was also reading BAT's AR for 2013 where they seem to see rising tobacco sales in asia-pacific. In general, smokers are decreasing in numbers in developed countries, but asia-pac doesn't really count as developed except maybe singapore. In any case, even if tobacco industry does go down, then NT mgt will need to search for new revenue streams for their pcl business (which is probably the more profitable biz). I am cautiously optimistic that they can do it since its a matter of finding the contracts. NT's revenue has actually increased yoy which kinda suggests to me that they are adept in doing so. The problem now is to keep cogs under control or just find more profitable contracts.

(Vested)

[BaconFTW]

Yes i agree that the increase in rev is not due to the more profitable pcl biz so overall margins have dropped. This relates back to my earlier point that the challenge is for NT to find more profitable contracts. In terms of fundamentals the company is still pretty strong (ie increasing book value, high cash, manageable debt etc), so that gives them some time to try and turn things around.

Though theres no certainty PMI might continue to give the contracts to NT, we cant say for sure one way or another. That's always the case for businesses in general - how to carry on securing your customers for the long term. I view the extension of the BAT contract as a possibility to extend this present arrangement further. I suppose this is much better than the scenario where BAT ends it now so i'm looking at it at a half full kinda way. I guess its not wrong to look at it half empty either, but thats why theres always someone willing to buy what others are selling.

I'm not sure about the declining volumes in msia and vietnam where NT has significant presence. Are there any reports to share? In any case, wouldnt BAT be selling their products to asia Pac in general? Why would they find a supplier in every country they distribute, leading to loss of economy of scale. I would have thought they will prefer to centralise their production and just choose one or two big suppliers to support their asia pac operations.

Three points.

1. There is rising sales for Asia Pacific but these markets are not where New Toyo/Tien Wah are dominating. These markets are mainly served by Amcor (China, Indonesia, The Philippines). Maybe Tien Wah/New Toyo are taking the crumbles from the rest of Asia Pacific where industry volume is declining.


2. Next, the higher revenue was due to trading segment and not due to real increase in revenue due to PCL segment where the profit margin is the highest. In fact, profit margin dropped.

(extract from New Toyo Q3)
The Group's turnover increased by 12.8% to SGD78.01 million in Q3FY2014 (SGD69.15 million in Q3FY2013) mainly due to
higher revenue in Trading division partially offset by lower revenue in Printed Cartons and Labels division.
Gross profit was SGD9.98 million in Q3FY2014 compared to SGD12.58 million in Q3FY2013. Gross profit margin in
Q3FY2014 decreased to 12.8% compared to 18.2% in Q3FY2013. The change in sales mix contributed to the lower gross
profit margin.
The Group's profit before tax decreased by 32.8% to SGD4.70 million in Q3FY2014 (SGD6.99 million in Q3FY2013). This
was mainly attributable to lower gross profit.

3. Need to be aware that the supply contract with PMI for the specialty paper was only a 2 + 2 (option). There is also no assurance that New Toyo can secure the next round. They are at the mercy of their buyers (i.e. PMI).

http://infopub.sgx.com/FileOpen/20141113...eID=324522


I think not all is lost for new toyo. Their subsidiary just announced an extension of supply agreement of one year with BAT. More details at the sgx announcement.

Was also reading BAT's AR for 2013 where they seem to see rising tobacco sales in asia-pacific. In general, smokers are decreasing in numbers in developed countries, but asia-pac doesn't really count as developed except maybe singapore. In any case, even if tobacco industry does go down, then NT mgt will need to search for new revenue streams for their pcl business (which is probably the more profitable biz). I am cautiously optimistic that they can do it since its a matter of finding the contracts. NT's revenue has actually increased yoy which kinda suggests to me that they are adept in doing so. The problem now is to keep cogs under control or just find more profitable contracts.

(Vested)

[Curiousparty]

If one had read BAT Annual report carefully, these information is readily available.

As long as one sees the words "volume contracting", this means New Toyo and Tien Wah are likely to fare badly.

(Extract from AR 2013 BAT) - which I had already posted previously. Pls check back. But I reproduce again below for easy reference:-

Australia
Profit was up strongly as a result of higher pricing and cost saving
initiatives, partially offset by lower volume. Illicit trade increased following the introduction of plain packaging. Market share was lower.

New Zealand
Market share was higher, however, volume was impacted by the
industry contraction. Profit grew strongly due to price increases and cost savings.

Japan
Despite significant competitor activity, there was good market share
momentum exiting the year, driven by the introduction of innovations.
Profit was adversely affected by a decrease in volume as a result of
industry contraction , as well as exchange rate movements.

Malaysia
Market share grew strongly, driven by the excellent performance of Dunhill, strengthening the Group’s leadership position. Profit was higher as the adverse impact of lower volume due to market contraction was offset by higher pricing.

Yes i agree that the increase in rev is not due to the more profitable pcl biz so overall margins have dropped. This relates back to my earlier point that the challenge is for NT to find more profitable contracts. In terms of fundamentals the company is still pretty strong (ie increasing book value, high cash, manageable debt etc), so that gives them some time to try and turn things around.

Though theres no certainty PMI might continue to give the contracts to NT, we cant say for sure one way or another. That's always the case for businesses in general - how to carry on securing your customers for the long term. I view the extension of the BAT contract as a possibility to extend this present arrangement further. I suppose this is much better than the scenario where BAT ends it now so i'm looking at it at a half full kinda way. I guess its not wrong to look at it half empty either, but thats why theres always someone willing to buy what others are selling.

I'm not sure about the declining volumes in msia and vietnam where NT has significant presence. Are there any reports to share? In any case, wouldnt BAT be selling their products to asia Pac in general? Why would they find a supplier in every country they distribute, leading to loss of economy of scale. I would have thought they will prefer to centralise their production and just choose one or two big suppliers to support their asia pac operations.

Three points.

1. There is rising sales for Asia Pacific but these markets are not where New Toyo/Tien Wah are dominating. These markets are mainly served by Amcor (China, Indonesia, The Philippines). Maybe Tien Wah/New Toyo are taking the crumbles from the rest of Asia Pacific where industry volume is declining.


2. Next, the higher revenue was due to trading segment and not due to real increase in revenue due to PCL segment where the profit margin is the highest. In fact, profit margin dropped.

(extract from New Toyo Q3)
The Group's turnover increased by 12.8% to SGD78.01 million in Q3FY2014 (SGD69.15 million in Q3FY2013) mainly due to
higher revenue in Trading division partially offset by lower revenue in Printed Cartons and Labels division.
Gross profit was SGD9.98 million in Q3FY2014 compared to SGD12.58 million in Q3FY2013. Gross profit margin in
Q3FY2014 decreased to 12.8% compared to 18.2% in Q3FY2013. The change in sales mix contributed to the lower gross
profit margin.
The Group's profit before tax decreased by 32.8% to SGD4.70 million in Q3FY2014 (SGD6.99 million in Q3FY2013). This
was mainly attributable to lower gross profit.

3. Need to be aware that the supply contract with PMI for the specialty paper was only a 2 + 2 (option). There is also no assurance that New Toyo can secure the next round. They are at the mercy of their buyers (i.e. PMI).

http://infopub.sgx.com/FileOpen/20141113...eID=324522


I think not all is lost for new toyo. Their subsidiary just announced an extension of supply agreement of one year with BAT. More details at the sgx announcement.

Was also reading BAT's AR for 2013 where they seem to see rising tobacco sales in asia-pacific. In general, smokers are decreasing in numbers in developed countries, but asia-pac doesn't really count as developed except maybe singapore. In any case, even if tobacco industry does go down, then NT mgt will need to search for new revenue streams for their pcl business (which is probably the more profitable biz). I am cautiously optimistic that they can do it since its a matter of finding the contracts. NT's revenue has actually increased yoy which kinda suggests to me that they are adept in doing so. The problem now is to keep cogs under control or just find more profitable contracts.

(Vested)

[Curiousparty]

Xinhua General News Service
September 16, 2014 Tuesday 7:17 AM EST

Vietnam's cigarette tax hike could see numbers of smokers drop, related illnesses decrease


Vietnam's Ministry of Finance has made proposals to the under-discussion amendment on the Law on Special Consumption Tax to increase the consumption tax on cigarettes from 65 percent in 2014, to 75 percent in 2015, and 85 percent in 2018.

If approved, the new tax is expected to contribute more than 2. 9 trillion VND (136.5 million U.S. dollars) in taxes in 2015 and 7. 7 trillion VND (362.4 million U.S. dollars) in 2018.

While experts and healthcare activists said the proposal was too low and not strict enough to reduce consumption and combat trade fraud, domestic smokers argued the hike should be reviewed according to residents' average income.

The tax rate on the retail price of cigarettes in Vietnam currently stands at 41.6 percent. To achieve the national strategy of reducing smoking from 47.4 percent to 39 percent of males in the population, the new tax must be 105 percent in July 2015 and 145 percent in 2018, according to the Ministry of Finance.

Nguyen Tuan Lam from the World Health Organization said if the new tax could increase the price of cigarettes by 10 percent, the consumption level would be reduced by a mere five percent.

In its report in 2010, the Vietnamese Ministry of Health (MoH) revealed that 15 million Vietnamese people were smokers, and one in every four smokers were aged between 15 and 24 years old.

Insiders said one of the reasons why millions of Vietnamese could afford to smoke is because of the comparatively low tobacco tax rate, which was only higher than that of Cambodia compared with other ASEAN countries.

Vietnam imposed a 41.6 percent rate while that of Brunei was 81 percent, Singapore 71 percent and Thailand 70 percent, according to sources from the non-government organization HealthBridge Canada, in Vietnam.

Pham Thi Hong Anh, HealthBridge Canada's country director, told local media that the proposal of the Vietnamese Ministry of Finance to raise the rate from 65 percent to 75 percent will be ineffective, and the consumption power of these products will not change.

Meanwhile, MoH's Prevention and Control on Tobacco Harm Program said the experts' proposal was quite high, and this is echoed, in part, by domestic smokers.

Nguyen Can, 60, a retired construction worker in the Go Vap district of southern Ho Chi Minh City, told Xinhua that he has smoked cigarettes for more than 40 years and it is really hard for him to quit the habit. "I know, smoking is very harmful to health, both of the smokers and people around, but I have gotten used to it for quite a long time and cannot quit. The only way that I can make it better is to reduce the amount of cigarettes I smoke every day," he said.

Can said he spends roughly 500,000 VND (25 U.S. dollars) per month on his smoking habit, which equals one-eighth of his monthly pension.

"If the tax will be doubled in a couple of years, I would not be able to afford to spend that much," he said, adding that even though, he supported the increase of cigarette consumption tax, as it might be an effective way to help him and other heavy smokers reduce smoking.

Vietnam has 15 million smokers and is one of 15 countries with the highest rate of cigarette smokers in the world at 48 percent for men and 1.4 percent for women, according to the World Health Organization.

About 33 million non-smoking Vietnamese (out of the country's 90 million population as of November 2013) have to passively inhale smoking at home, and another 5 million people are affected by second-smoking in offices and public places.

Tobacco-related illnesses kill 40,000 people each year in Vietnam, and that figure is expected to rise to 70,000 per year by 2030, according to the Ministry of Health. Cigarette smoking is the main cause of lung cancer.

Since mid-2013, Vietnam has enacted the Law on Prevention and Control of Tobacco Harm, which bans smoking in public places such as schools, hospitals and workplaces, among other regulations.

[Curiousparty]

In BAT's latest 2014 Q3 results, Vietnam's volume had shown a decline!

{Extract from BAT 2014 Q3}

"Cigarette volume from subsidiaries was 495 billion, down by 1.0%, with growth in many markets, including the
Middle East, Bangladesh, Venezuela, Pakistan, Ukraine, Turkey and Indonesia, more than offset by lower volume in Russia, Vietnam , Brazil, Poland and Canada, mainly driven by industry decline. Total tobacco volume was also 1.0% lower."

"The five Global Drive Brands’ cigarette volume was up by 6.2%, and their combined market share continued to grow strongly in the Group’s key markets. Dunhill’s volume increased by 3.5%, with good growth in Indonesia, Brazil and South Korea partially offset by market decline in Malaysia. Kent’s volume decreased by 2.7% mainly due to market contraction in Russia and Romania, partially offset by good growth in the Middle East and Japan."


This is very bad considering the fact that Vietnam is one of the last few good markets for Tien Wah/New Toyo. The fact is that industry volume is declining. The pie is getting smaller for everyone.

[BaconFTW]

Yes, but my question was does BAT use a local supplier for each country they operate in i.e an indonesian supplier for indonesian sales; a vietnamese supplier for vietnamese sales? If not, then though msia and vietnam sales are contracting, asia pac sales as a region is still doing fine so there is still some demand for cigarette packaging by NT. I cant explain for sure why NT sales for pcl dropped though, but that will be interesting qn to ask at the agm.

But in any case, perhap we are concentrating too much on cigarettes sales.NT is a packaging company after all. If they can find alternative rev sources, that will be sufficient.

[Curiousparty]

Buying into New Toyo/Tien Wah is a play on tobacco packaging. Tobacco packaging profit margin is much higher than other categories of printing. (U can refer to Tien Wah AR). If not for tobacco packaging, I will not even look at New Toyo/Tien Wah. If not for tobacco packaging, they are simply no different from other run-of-the-mill printing companies. There are hundreds of such companies out there. For other categories of printing (e.g. specialty paper, non-tobacco related printing), the competition and rivalry will be much worse and profit margin will be even thinner.

Yes, but my question was does BAT use a local supplier for each country they operate in i.e an indonesian supplier for indonesian sales; a vietnamese supplier for vietnamese sales? If not, then though msia and vietnam sales are contracting, asia pac sales as a region is still doing fine so there is still some demand for cigarette packaging by NT. I cant explain for sure why NT sales for pcl dropped though, but that will be interesting qn to ask at the agm.

But in any case, perhap we are concentrating too much on cigarettes sales.NT is a packaging company after all. If they can find alternative rev sources, that will be sufficient.