A shareholder of New Toyo contributed the following article:
GOING BY the posts in Valuebuddies.com forum, investors seemed to have ruled out New Toyo International paying a special dividend from the asset sale proceeds from its associate, Shanghai Asia Holdings.
Therefore, the 3 July announcement by New Toyo of a special interim dividend of 2.28 cents a share, ahead of its half-year results announcement (in mid-Aug), would have come as a surprise to those investors.
I will discuss the prospects of another special dividend later as I would like to now share some salient points about New Toyo, which many readers are probably unfamiliar with.
GOING BY the posts in Valuebuddies.com forum, investors seemed to have ruled out New Toyo International paying a special dividend from the asset sale proceeds from its associate, Shanghai Asia Holdings.
Therefore, the 3 July announcement by New Toyo of a special interim dividend of 2.28 cents a share, ahead of its half-year results announcement (in mid-Aug), would have come as a surprise to those investors.
I will discuss the prospects of another special dividend later as I would like to now share some salient points about New Toyo, which many readers are probably unfamiliar with.
There has been no analyst coverage on New Toyo for many years, and the company's results announcements and annual report do not disclose much about the operations.
It is not surprising that New Toyo has been viewed by many as not being investor-friendly.
It is not surprising that New Toyo has been viewed by many as not being investor-friendly.
New Toyo International's results.Since its listing in 1997, at a subscription price of 80 cents, New Toyo (recently traded at 32 cents) has made a number of investments that did not provide sustainable profits. Because of this, the company has been viewed as being not savvy despite the subsequent divestment of the sub-par investments.With rationalisation, New Toyo now has two business segments -- the production of specialty paper and printing of cigarette cartons.
The printing business, undertaken by 53%-owned Tien Wah, is significant, contributing the bulk of New Toyo's profit.
The emergence of Tien Wah as a major printing concern is interesting.
Before 2007, Tien Wah competed with New Toyo for printing jobs.
Tien Wah is an established printer listed on Bursa Malaysia but it had only one factory (in Malaysia). New Toyo had two low-cost factories in Vietnam but they lacked track records.
Tien Wah is an established printer listed on Bursa Malaysia but it had only one factory (in Malaysia). New Toyo had two low-cost factories in Vietnam but they lacked track records.
New Toyo's acquisition of Tien Wah in 2007 and putting Tien Wah in charge of the two factories in Vietnam transformed Tien Wah into a formidable player.
In 2008, Tien Wah bought from the British American Tobacco (BAT) its printing firm in Australia and became the exclusive printer serving four BAT markets for the next seven years.
But just when Tien Wah was about to enjoy steady profit from the exclusive contract, BAT decided to refresh the packaging of its products more frequently.
Frequent changes of design result in fewer cartons being produced in each print run and a high proportion of machine time is wasted in setting up the system before print runs are carried out.
Frequent changes of design result in fewer cartons being produced in each print run and a high proportion of machine time is wasted in setting up the system before print runs are carried out.
As the short-run printing was not anticipated, Tien Wah had to outsource some jobs, at high costs, while awaiting the arrival of new machines it had ordered. Tien Wah's profit was poor in 2009 and 2010, but picked up strongly thereafter.
BAT has also recently required Tien Wah to lower the rate of printing defects to the point of near perfection. Tien Wah is responding well to this requirement, according to its annual report.
It would seem that BAT's stringent requirements have provided Tien Wah the opportunity to demonstrate its capability for higher performance.
New Toyo's other investments in the past may have led many investors to view the acquisition of Tien Wah negatively. But based on Tien Wah's annual reports and results announcements, Tien Wah has done well.
There are concerns that the 7-year business agreement with BAT may not be renewed on expiry in Dec 2015. However, I believe that if Tien Wah maintains its cost advantage and continues to respond to BAT's new, stringent packaging requirements, there are reasons to be optimistic.
Special dividend 2 coming?
Special dividend 2 coming?
New Toyo can be expected to declare the usual interim dividend (0.8 cent a share last year) when it announces its 2013 half-year results in mid-August. The company has consistently paid an interim dividend.
Coming back to the special interim dividend that was declared this month (July) --- there are been speculation as to whether there will be another round of special dividend as the special interim dividend of $10m is a small fraction of asset sales proceeds amounting to $57m..
Coming back to the special interim dividend that was declared this month (July) --- there are been speculation as to whether there will be another round of special dividend as the special interim dividend of $10m is a small fraction of asset sales proceeds amounting to $57m..
New Toyo Group (which includes Tien Wah) would still have $14.3m net cash after paying out the special interim dividend on 22 July.
As Tien Wah's net borrowings amount to $21.8m. New Toyo's own net cash would be $36.1m (ie $21.8 m + $14.3 m).
As Tien Wah's net borrowings amount to $21.8m. New Toyo's own net cash would be $36.1m (ie $21.8 m + $14.3 m).
This is a hefty sum as New Toyo's specialty paper business does not consume much capital.
Tien Wah has strong cash flow (annual profit of $16m plus $11m depreciation/amortisation) and is not reliant on New Toyo for funding despite the net borrowing of $21.8m.
In the light of all this, I am hopeful that another special dividend would be paid in the future by New Toyo.
Tien Wah has strong cash flow (annual profit of $16m plus $11m depreciation/amortisation) and is not reliant on New Toyo for funding despite the net borrowing of $21.8m.
In the light of all this, I am hopeful that another special dividend would be paid in the future by New Toyo.
Comments
it is not unreasonable for Amcor to offer at least 6 ~7 times EBITDA if it were to acquire New Toyo (and by extension Tien Wah). This would value New Toyo between 50 to 60 cents.
Just need to be patient :)
it is not unreasonable for Amcor to offer at least 6 ~7 times EBITDA if it were to acquire New Toyo (and by extension Tien Wah). This would value New Toyo between 50 to 60 cents.
Just need to be patient :)
The above statement is an understatement of what had actually happened in 2001/2002's tissue paper business. The EPS loss was more than 20 cents!!!
Let's wait and see !!!
Was he afraid that New Toyo share price would drop sharply after paying out round one of special dividend?
Tien Wah has cut its dividend - New Toyo might follow suit...
Group’s revenue for the second quarter ended 30 June 2013 reduced by 4.2% or RM4.4 million to
RM101.4 million from RM105.8 million in the preceding year corresponding quarter. The current quarter
2013 results were impacted by sluggish demand in certain cigarette related packaging products.
This has shown that tobacco packaging is not as resilient as what people think it to be...
Let me give a simple analogy. The GDP of the country is growing bigger every year but in terms of real growth to each member of the country. We look at GDP per capita. Similarly, in terms of value creation to each equity holder of the company, we look at EPS attributable to equity holders and not group EPS, which is analogous to “GDP of the country”.
Stockerman's comment that New Toyo's earning per share in 2012 is worst than pre-Bat times is also misleading. The 2012 's earning was lower because it has divested SHA.
Even going by audited results, the edging of EPS (attributable to equity holders) is miniscule. Did it even cover inflation growth? Highly doubtful.
All the more one should refer to "EPS attributable to equity holders" for comparision, from the pt of view of shareholders of that company.
Why went through the big trouble of doing rights issue and only get to enjoy that miniscule edging up of EPS?
Looking at New Toyo's EPS (now compared to pre-BAT times), it is even worse.
Can someone help to dig and show it to everyone here ?
Many tks.
Several figures you quoted from Tien Wah website differ from those (underlined) found in Page 12 of Tien Wah 2012 annual report:
............... ............RM' 000
...............2012.......2011........2008
Revenue.......408,081....388,575.....188,059
Group profit ..40,375.....38,374......19,552
Attributable
profit.........27,168.....26,421......18.705
Profit per
share(sen)......28.15......27.38.......27.14
The figures in the annual report were audited. You may want to contact Tien Wah to sort out the discrepancies.
2012 profit per share was not worse off as stated by you. It edged up slightly, from 27.38 sen in 2011 to 28.15sen in 2012.
Your point that Tien Wah is worse off with the BAT supply contract is not backed up by audited figures. In fact profit per share edged up from 27.14sen in 2008 to 28.15 sen in 2012.
In fact, profit per share (based on attributable profit that excludes minority interests) is not a good measure as the subsidiary set up between Tien Wah and New Toyo to fulfill the BAT supply contract is a substantial profit centre. The more relevant measure is group profit per share, which was a high 41.84 sen in 2012 against 28.36 sen in 2008.
There is therefore no reason to suggest that the BAT supply contract destroys value.
FY12 ratios were worse off compared to FY11. Tien Wah should have mounted the learning curve in FY12 compared to FY11.
Comparing FY12/FY11 to FY08 (pre-BAT contract period), ratios were worse off now against FY08. Tien Wah was doing much better before taking on the BAT contract!!!
Investors should note this carefully. Dont be taken in by people who said that Tien Wah has benefitted from BAT contract. This was not borne out in the financial ratios!!
http://www.tienwah.com/FinancialHighlights.htm
What is stopping Amcor from doing so?
Tien Wah's factories in Vietnam enjoy lower tax and cost. The tax rate for its factory operating in the Vietnam-Singapo re Industrial Park is 7.5% between 2010 and 2019.
In its 2008 annual report, Tien Wah stated that this factory "anticipated taking up portions of the Group's existing business from other units in order to take advantage of its lower cost environment."
In 2009 Tien Wah revealed, in connection of acquisition of the second factory in Vietnam from New Toyo, that it would be taking over "all the remaining BAT Singapore volume" and transfer certain volume from BAT Australia to Vietnam.
All the three new printing machines and the enhanced machine were assigned to Vietnam.
Efforts to produce more in Vietnam have yielded positive results -- Tien Wah's effectve tax rate dropped from 22% in 2008 to 14.5% in 2012, improving competitiveness .
the no of smokers is declining rapidly." I suppose Stockerman is pointing out that New Toyo will supply fewer cigarette cartons.
Cigarette exports to Japan used to be low. BAT inroad in Japan will lead to higher sale, requiring more cigarette cartons from New Toyo.
http://www.irishtimes.com/business/secto...-1.1456932
British American Tobacco returns to Myanmar after 10 years
BAT left the country following an ‘exceptional’ request from the British govenment to stop doing business there in 2003
More good news for Tien Wah/New Toyo.
This might not be true. Why did the share price go from the low 20 cents to 30 cents when the EPS went down from 4.51 cents to 3.37 cents?
Obviously, there was huge expectation of a big special dividend payout from SAH sales proceeds..
the no of smokers is declining rapidly...
"Current cash level = 38.5 + 29 - 10 = 57.5 mil (post 1st round of dividend payout).
or 13 cents of cash.
Current share price = 30 cents.FY12 EPS = 3.37
Valuation of underlying business = 17 cents / 3.37 = P/E of 5."
If it were correct to take gross cash (instead of net cash) level in valuing the ex-cash value, then a company's ex-cash value will rise by piling up borrowings.
New Toyo Group net cash of $14.3m gives rise to 3.25c per share compared the 13c based on gross cash.
There are two points in the article I found noteworthy.
First, New Toyo will still have a net cash of $36.1m after giving out the special interim dividend of 2.28 cents a share. Investors will have to make a judgement whether there will be another round of special dividend. If New Toyo itself and Tien Wah have to keep the cash to expand its core businesses, it may not be bad for shareholders.
Second, from Tien Wah annual report, it seems that it is a very profitable company, and New Toyo was fortunate to have acquired it.
or 13 cents of cash.
Current share price = 30 cents.
FY12 EPS = 3.37
Valuation of underlying business = 17 cents / 3.37 = P/E of 5.
Is New Toyo underlying core business only worth P/E of 5?
****
Based on 1Q-2013 results, net profit (attributable to equity holder) has improved by 51%.
Lets assume full year EPS for 2013 will improve by 20% = 1.2 x 3.37 = 4 cents. (conservative)
Tien Wah P/E = 7.68 (trailing). Say we apply P/E of 7 to New Toyo. (conservative)
Valuation of New Toyo = 7 x 4 + Cash = 28 + 13 = 41 cents. (conservative)
http://businessmirror.com.ph/index.php/en/news/top-news/9126-british-american-tobacco-invests-200-million-in-phl
Why would the key shareholders not want the share price to go up?
Tainted past and history...
How about plain packagaing? it seems to be spreading from Australia to the other parts of the world?
The announcement has stated very clearly that this current special dividend was paid up based on assessment of cashflow need for FY2013.
Not sure what is the motive of the author writing the article on New Toyo.
Amcor is on an aggressive M&A. Why did Amcor give up Tien Wah in the first place to New Toyo? Will Amcor come back and buy over Tien Wah/New Toyo?
You asked how did New Toyo gain control of Tien Wah.
Tien Wah founder sold his stake to New Toyo in 2005. Two years later, Amcor, another substantial shareholder of Tien Wah, followed suit, resulting in New Toyo gaining control of Tien Wah.
In early days, BAT was concerned wth the risk of supply disruption of cigarette cartons as they are critical inputs of cigarette production chain. BAT therefore set up its own printing factories (such as Anzpac) or invested in existing reputable printers (such as Tien Wah).
In 2003, BAT decided to give up packaging to focus on cigarette manufacturing and marketing. The decision could have to influenced by advances in the logistics industry that leveraged on IT innovation, automation, and expansion of shipping routes. BAT consequently sold its Tien Wah shares to Amcor, a major packaging company listed in Australia.
Amcor and New Toyo were, and still are, rivals. The sale of Amcor's stake in Tien Wah (in 2007) was puzzling. Amcor should have foreseen the pooling of resources would make New Toyo stronger. Operating alone, New Toyo, nor Tien Wah, had little chance of taking over Anzpac (from BAT) and winning the BAT exclusive supply contract in 2008.
Liberalisation also helps global companies to do better. The Philippines used to favour existing brands by imposing higher taxes on new brands. The present administration recently levelled the playing field, resulting in newcomers such as BAT gaining market share there. BAT produces cigarettes in Malaysia for export to the Philippines using cartons from Tien Wah in accordance with the 7-year exclusive supply contract.
BAT is also exporting more to Japan, from Malaysia, benefiting Tien Wah.
Tien Wah is riding on BAT's vigorous expansion drive.
Total yield = 12.4% yield on stock purchase price of 32 cents.
Cons: The SAH divestment speaks for itself
Take Care.
FY12 profit dropped because of the divestment of SAH.
I was wondering why there was a drop in profit in New Toyo in 2012. The writer has also overlooked the universal curb in smoking which will reduce the printing business.