KUALA LUMPUR (Sept 15): Plastic packaging manufacturer Thong Guan Industries Bhd will focus on bottom line growth as it shifts focus to higher value-added products and services, according to CIMB Research.

“Over the next few years, Thong Guan will focus on more high value-added products and services.

Key products for TGI will be the thin/nano-layer stretch films and the PVC food wrap films,” said CIMB Research in a note today.

“We maintain our earnings per share forecasts but with the ex-date (Sep 12) just over for the proposed ICULS/warrants, we revise our target price to ex-all price at RM3.00,” it said, adding that this was based on a 30% discount to its fully-diluted RM4.28 sum-of-parts per share, from its implied target price of RM3.95 previously.

Thong Guan is CIMB Research’s top pick for the packaging sector.

“The company is committed to RM100 million capex over the next few years, which should boost group production capacity by 40% to 170,000 tonnes annually in 3-4 years time,” said CIMB Research.

It said that the company had been putting more effort on research and development (R&D) over the past few years, offering high value-added services and products to its customers.

Thong Guan is also setting up a US$2 million R&D centre at its Sungai Petani plant, to be ready by year-end, the “first-of-its-kind” R&D centre in the Asia Pacific, equipped with sophisticated equipment from Europe.

The research house said that a focus area for the packaging manufacturer would be product safety during the transport of goods, which cost the industry losses of about €5bn annually, as around 4% of all goods transported are damaged.

“Conventional stretch films are not able to ensure that goods are properly secured to prevent damage,” it said, adding that over the past 1-2 years, the company has already started providing consulting services for some major customers in the region.

“If all goes well, Thong Guan believes 30% of its stretch film revenue will come from major direct end-customers by 2017,” it added.