Teckwah Industrial Corp Ltd - CIMB Research 2017-04-11: Printing out of box

Teckwah Industrial Corp Ltd - CIMB Research 2017-04-11: Printing out of box TECKWAH INDUSTRIAL CORP LTD 561.SI

Teckwah Industrial Corp Ltd - Printing out of box

  • Teckwah has successfully transformed from a paper box maker into a supply chain service provider; its non-print (logistics) segment formed 65% of FY16 group EBIT.
  • Core EBIT hit new highs in FY15-16 as investments bore fruit.
  • Strong cash flow, S$28m net cash; DPS raised to 2 Scts in FY16 (3.9% yield).
  • 9.6x FY16 core P/E (7.3x ex-net cash), 3.2x core EV/EBITDA, 0.81x FY16 P/BV.

Corporate Introduction 

Successful transformation from a paper box marker into a supply chain service provider

  • Since its inception in 1968, Teckwah Industrial Corp Ltd (Teckwah) has since evolved from a family-owned plain paper box producer into a group of companies providing customised supply chain solutions. Its full suite of services offered includes printing, packaging, logistics, supply chain management and digital solutions.
  • With a global network of 102 sites (43 self-operated and 59 alliance), Teckwah serves mainly multinational corporate customers in the IT, pharmaceutical and nutrition, lifestyle electronics and food and beverage sectors. Some disclosed well-known names include Philips, Panasonic and Meiji.

Key business segments 

  • Teckwah’s businesses can be classified into the following two broad segments: 
    1. The print-related segment comprises printing and packaging, digital database management, packaging design and provision of value chain services; 
    2. The non-print segment includes third-party logistics, return, refurbishment and remarketing services for computer equipment.
  • While revenue and EBIT of the print-related segment were volatile, Teckwah was able to consistently grow its non-print businesses, with the latter registering revenue and EBIT CAGR of 12.5% and 12.3%, respectively, in FY07-16.
  • The non-print segment has become the group’s top profit contributor today, representing 65% of group FY16 EBIT.

Strategic investments in FY11-14 bearing fruit 

  • Group core EBIT (excl. disposal gains, FX gains/losses, etc) hit new highs at S$17.2m in FY15 and S$19.1m in FY16 vs. S$12.3m-14.9m in FY11-14.
  • Management attributed the improving profitability to the several initiatives that Teckwah undertook during FY11-14, including: 
    1. investing in and moving into its new headquarters and print media hub - the Pixel Red at Paya Lebar iPark, 
    2. relocating its high-volume print and package activities to its new Iskandar factory, and 
    3. upgrading its China and Indonesia facilities.

Investment and move into the Pixel Red 

  • Located at Paya Lebar iPark of Singapore, the Pixel Red was conceptualised as an innovation hub for print and new media services. It also serves as Teckwah’s headquarters today. 
  • First announced in Aug 2011 and completed in Dec 2013, the development comprises total GFA of c.23,000 sq m and cost over S$60m. Teckwah moved its operations into the Pixel Red in Apr 2014.
  • Teckwah said in its FY14 annual report that the facility, besides housing its own corporate activities and operations, also succeeded in attracting a tenant mix that complements its own services, thus making the Pixel Red a focal point where Teckwah and its tenants can bundle their services, offering an integrated one-stop shop for its customers.

Construction of a new production facility in Iskandar 

  • To address Singapore’s increasing production cost issue, Teckwah acquired a site in the Iskandar Development Region in 2011 and proceeded to construct a new production facility for its high-volume printing and packaging businesses.
  • The construction of the building was completed in 2013 and the factory was fully fitted out and has been running since 2014.

Expansion of China and Indonesia facilities 

  • 2014 also saw the completion of the upgrading projects for its flexi packaging facility in Wuxi China and the manufacturing plant in Batam, Indonesia.
  • According to the group FY16 annual report, the expansion projects have led to higher profit contribution from these markets and positively impacted the group’s net profit.


Free cash flow turned positive in FY15 and FY16 

  • Over the past decade, Teckwah only registered negative free cash flow in FY11 (-S$6.1m), FY13 (-S$15.3m) and FY15 (-S$17.9m). The negative free cash flows in these three years were mainly due to the heavy capex related to the earlier mentioned strategic initiatives that Teckwah embarked on during FY11- 14 (the Pixel Red development itself cost over S$60m).
  • With the said strategic investments mostly completed by FY14, group free flow showed a strong recovery to +S$17m in FY15 and +S$26m in FY16, driven by improved profitability, rent savings (from moving to its self-owned headquarters, the Pixel Red vs. previously leasing from a third-party landlord) as well as slower capex.

Balance sheet strengthened in FY15 and FY16 

  • In line with the group’s strengthened free cash flow, Teckwah’s balance sheet improved from S$6.6m net debt as at end-FY14 to S$28.5m net cash as at end-FY16 (the previous decrease in Teckwah’s net cash position in FY11-14 was due mainly to the group financing its earlier mentioned strategic investments by internally-generated cash and external debt during the period).

Full-year DPS raised to 2 Scts in FY16 

  • After declaring 1.5 Scts DPS (interim and final) for five consecutive years in FY11-15, the group raised its total DPS to 2 Scts in FY16 (0.5 Sct interim, 1.5 Scts final). This translates into FY16 dividend yield of 3.9% based on the current price and a payout ratio of 34%.


  • Valuation based on historical financial figures Teckwah currently trades at 9.6x FY16 core P/E, 1.6 s.d. above its average historical 1-year forward core P/E of 7.6x. 
  • Its FY16 P/BV of 0.81x is 2.9 s.d. above its average historical 1-year forward P/E of 0.65x.

High profile management, low profile shares 

  • Group chairman Thomas Chua is the key figure driving Teckwah’s transformation and development. He is a member of Singapore’s 12th and 13th Parliament and served two terms as president of Singapore Chinese Chamber of Commerce & Industry in 2013-17.
  • We were not able to get hold management for a meeting.

Target Price: N/A

Roy CHEN CFA CIMB Research | http://research.itradecimb.com/ 2017-04-11
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