Thong Guan to gain from industrial bag demand

PETALING JAYA: Thong Guan Industries Bhd is favoured for its growth potential as a local plastic packaging manufacturer, as it is enjoying robust demand for its industrial bags.

The bags will be driven by their extensive usage in the resilient food and beverage (F&B) and fast-moving consumer goods (FMCG) sectors.

According to Kenanga Research, Thong Guan is enjoying good demand for its industrial bags, which include lamination films, oil bags, sugar bags, shrink film and stretch hood.

“We believe the resilient demand for these products can be attributed to their extensive use in the F&B and FMCG sectors, which are less impacted by the global economic downturn.

“Additionally, the company is getting significant orders, particularly for its shrink film from breweries and mineral water producers, expanding Thong Guan’s market share in these sub-segments,” it added.

The research house noted that industrial bags accounted for 16% of its total revenue in the financial year ended Dec 31, 2022 (FY22) and should increase to around 17%-18% in FY23.

Kenanga Research said the company is expanding its presence in the United States by setting up new warehouses and a research and development (R&D) centre there.

“These warehouses will shorten response and delivery times, which will help its distributors to operate more efficiently and position it deeper into the US market.

“We believe Thong Guan is on track to meet its target to triple its export volume to the United States over the next few years. In FY22, North America contributed 9% of Thong Guan’s total sales,” it added.

It said Thong Guan is planning to set up a fourth Newton global R&D centre in the United States, in addition to its three existing ones in Malaysia, Europe and China.

“The new R&D facility will focus on analysing and optimising solutions for its customers, especially those related to pallet stability for stretch film and hoods, as well as shrink films. The completion is targeted by end-FY24 or FY25,” it added.

The research house is maintaining its “outperform” call and target price of RM2.86, as it came away from a recent engagement with Thong Guan feeling upbeat about its outlook.

“We continue to like Thong Guan due to the growth potential of the local plastic packaging sector, as Malaysian players like Thong Guan are gaining market shares from overseas producers that are losing competitiveness due to rising production costs,” it said.

The research house added that the company is also aggressively going into the European and US markets with environmentally-friendly products.

It foresees Thong Guan to show earnings stability, underpinned by a more diversified product portfolio and steadily growing clientele base, while its expansion plans for premium products will bode well for its growth.