THONG Guan Industries Bhd’s one-for-one bonus issue shares are listed today have received thumbs-up from CGS-CIMB Research on account that the doubling of the company’s share base to 382.8 million should theoretically improve its trading liquidity.
Moreover, the research house reckoned that the bonus issue exercise was timely given the counter has been enjoying a rise lately.
“Year-to-date, the stock spiked by 92.3%, ahead of the 40.5% year-on-year (yoy) jump in its 1H FY2020 core net profit,” wrote analyst Kamarul Anwar.
Moving forward, CGS-CIMB Research expects Thong Guan’s topline to grow at 4-10% yoy while its net profit improve by 7.2-30.5% on the back of higher demand for the company’s stretch films in Europe as well as additional incoming capacity.
One thing that investors ought to appreciate about Thong Guan is that its appetite for growth does not come at a cost to its balance sheet, according to Kamarul.
As of end-June this year, the company remained in net cash position after deducting the RM149 mil total borrowings from its RM244 mil cash balance.
The net cash of RM95 mil as at that period grew by 102.6% from the RM46.9 mil as of end-June 2018.
All-in, CGS-CIMB maintained its “add” call on Thong Guan with a target price of RM3.61.
“The downside risks include crude oil price going further south, and the US dollar depreciating further while a major upside risk for the stock is sales growing more than expected,” added the research house.
At 10.50am, Thong Guan was down 5 sen at RM3.11 with 758,700 shares traded, thus giving the company a market capitalisation of RM1.18 bil. – Oct 20, 2020
