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. 
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.
newtoyo_trackrecd7.13New 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.
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.
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? 
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..
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). 
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.


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#47 New Toyo Fan 2014-07-05 23:12
Amcor announces Indonesian flexible packaging acquisition. Amcor announces today, that it has entered into an agreement to acquire Bella Prima Packaging, an Indonesian flexible packaging business for A$27 million. The purchase price represents 7 times CY2013 EBITDA.

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 :)
#46 New Toyo Fan 2014-07-05 23:10
7 May, 2014: Amcor announces Indonesian flexible packaging acquisition. Amcor announces today, that it has entered into an agreement to acquire Bella Prima Packaging, an Indonesian flexible packaging business for A$27 million. The purchase price represents 7 times CY2013 EBITDA.

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 :)
#45 Critics 2014-07-03 08:40
New Toyo has been dropping from a recent high of 32 cents to 28 cents given the spate of deteriorating financial results.
#44 Critic 2014-06-27 19:20
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.

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!!!
#43 Disapproval 2014-05-27 19:47
The latest Q1 results from Tien Wah will show that its financials have been deteriorating!!
+1 #42 New Toyo Supporter 2013-11-20 12:53
Special Dividend MIGHT be on the way.

Let's wait and see !!!
+2 #41 Contrarian 2013-10-07 09:46
what motive does ths author of this article have in mind when he wrote it?

Was he afraid that New Toyo share price would drop sharply after paying out round one of special dividend?
+1 #40 Contrarian 2013-09-12 04:57
Is this counter dead?
+1 #39 stockerman 2013-08-01 17:37
Tien Wah just released its Q2 results...seems to be worse off, compared to last year...And by extension New Toyo's result will not be good.
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...
#38 stockerman 2013-07-23 05:06
From the point of view of the equity holders, there might not be much “value creation” as can be seen from the small "edging up" of EPS (pre and post BAT contract). Had Tien Wah not secured the BAT contract, it would have been much worse for Tien Wah and New Toyo.

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”.
#37 De-Stock 2013-07-22 08:33
When assessing whether BAT's contract is beneficial to New Toyo, we should look at Tien Wah's group profit because of the setting up of a subsidiary(MEIL ) between Tien Wah and New Toyo for the BAT supply contract. New Toyo has a 49% stake in MEIL. As pointed by New Toyo Investor, Tien Wah group profit per share was a hefty 41.84 sen in 2012 against 28.36 sen in 2008.
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.
#36 stockerman 2013-07-20 07:51
If Tien Wah could not even be bothered with “erroneous financial ratios” being published on their official website, why would anyone go and argue with them what should be the correct ratios reflective of their underlying performance...

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.
#35 New Toyo investor 2013-07-18 21:28
Your contention that Tien Wah is worse off in 2012 compared with 2011 is incorrect. Your second contention that Tien Wah is also worse off with the BAT supply contract is also incorrect.

Several figures you quoted from Tien Wah website differ from those (underlined) found in Page 12 of Tien Wah 2012 annual report:
............... ............RM' 000

Group profit ..40,375.....38,374......19,552
Profit per

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.
+1 #34 Disapproval 2013-07-18 15:21
Just need to look at financial ratios, say comparing FY12 and FY11.

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!!

#33 RunningMan 2013-07-18 13:30
Disapproval is saying that Tien Wah is inefficient.Cou ld you share with us data or figures to suggest that Tien Wah has not been operating efficiently?
#32 stockerman 2013-07-18 05:06
If Tien Wah/New Toyo is so cost-efficient, why doesn't Amcor come and buy it over?
What is stopping Amcor from doing so?
#31 Disapproval 2013-07-18 05:05
The real efficiency gain should come from Real Operational Efficiency, and not "paper efficiency", such as transferring volume from one tax regime to the other when the actual operations are still running at the same old level of efficiency.
#30 New Toyo investor 2013-07-17 19:50
One has to assess the likelihood of BAT renewing the contract on his own.
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 .
#29 stockerman 2013-07-17 15:40
There is no need to be optimistic about the BAT renewal. Even management is not showing confidence about it. We should not jump the gun here.
#28 boonpp 2013-07-17 13:27
Why should investors be optimistic on the renewal of the exclusive printing agreement with BAT come 2015/6?
#27 RunningMan 2013-07-14 20:00
in saying "Japan market is overall shrinking with its aging population. it is a declining market..
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.
#26 Underdogger 2013-07-14 17:13
RE: New Toyo

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.
#25 Disapproval 2013-07-14 17:13
If New Toyo is so damm good, wont the author of the article want to buy more for himself?
#24 stockerman 2013-07-13 10:01
The article conveniently assumed that investors have given up hope of special dividend..

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..
#23 Stockerman 2013-07-13 04:58
#22 stockerman 2013-07-13 04:50
Japan market is overall shrinking with its aging population. it is a declining market..

the no of smokers is declining rapidly...
#21 New Toyo investor 2013-07-12 20:55
Underdogger wrote:

"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.
#20 RunningMan 2013-07-12 18:19
"New Toyo shareholder", the writer, obviously hopes the share price will go up.
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.
#19 Underdogger 2013-07-12 17:26
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.

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)
#18 Stone 2013-07-12 11:39
An article on BAT's plan to increase investments and market share in Philippines after passing of the sin-tax reform which levelled the playing field for BAT.

#17 stockerman 2013-07-12 09:04
There is an obvious reason why New Toyo chose not to be investor-friend ly.

Why would the key shareholders not want the share price to go up?

Tainted past and history...
#16 Disapproval 2013-07-12 08:42
BAT gave up printing/packag ing because it is low profit margin business. Manufacuring of tobacco is much much more profitable. BAT is smart...
#15 questions 2013-07-12 06:57
In assessing the value of a stock, we should not be overly focused on whether the co is giving special div or not. What is more important is its growth prospects. In this case, I am concern if it is able to renew its contract w BAT, and this is not even growth per se, renewal means only sustaining the revenue from BAT. There seems to be growing efforts to curb smoking. And there is this advent of e-cig. New Toyo seems highly dependent on BAT, and BAT's growth is not within New Toyo's control.
#14 Disapproval 2013-07-12 05:43
Won't the advent of e-cig put a dent to traditional smoking printing/packaging?
How about plain packagaing? it seems to be spreading from Australia to the other parts of the world?
#13 questions 2013-07-12 04:39
My exact sentiments. Wonder what is the motive...
#12 Disapproval 2013-07-11 15:40
unlikely to have another round of special dividend for FY2013.

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.
+1 #11 questions 2013-07-11 09:29
The company has already decided on the special div of 2.28. In deciding this, I would assume that the company, in its own prudent assessment, has already taken in consideration the amount of cash it has and the sale proceeds. Why would it give another round of special div?
+1 #10 Disapproval 2013-07-10 15:12
The article conveniently forgot that the original expectation was for a much higher special dividend from SAH. New Toyo got back 12 cents from SAH divestment but it only paid out such a small amt 2.28 cents....
#9 Interested Party 2013-07-10 07:27
At the recent AGM, did the management express confidence in the renewal of the BAT contract?

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?
#8 new toyo investor 2013-07-09 05:07
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.
#7 boonpp 2013-07-09 04:40
Noticed that Chairman of New Toyo then, senior Yen, was appointed as CEO of Tien Wah on 1 Sep 2010. Can Tien Wah's turnaround after facing frequent refreshing in packaging be attributed to him?
#6 boonpp 2013-07-08 17:34
Instead of competing directly with Tien Wah, its competitor prior to 2007/8, New Toyo engineered an acquisition of majority control over Tien Wah. How did they do it?
+1 #5 New Toyo Investor 2013-07-08 11:49
Cigarette consumption is declining in developed countries. Elsewhere, it is not. Global companies such as British American Tobacco are enlarging their market shares in developing countries as smokers give up local brands for more glamorous international brands.
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.
-1 #4 David 2013-07-08 11:11
The dividends this FY will keep me holding. 2.28 interim special + 0.8 interim ordinary + 0.9 final dividend. ( I assume 0.8 + 0.9 are maintained. ) Any second payout of special dividend would be most welcomed, of course.

Total yield = 12.4% yield on stock purchase price of 32 cents.
#3 Guest 2013-07-08 09:40
Pros : Probable "Divestment" which might result in further distribution of cash holdings.

Cons: The SAH divestment speaks for itself

Take Care.
#2 Underdogger 2013-07-08 08:21
No of smokers in developing countries are still climbing. New Toyo/Tien Wah markets are in the developing countries.

FY12 profit dropped because of the divestment of SAH.
#1 Goh 2013-07-08 07:05
Thanks for the insightful write-up on New Toyo.

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.

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