New Toyo - Have they got their heads on?

Will the increasing use of medical marijuana benefit New Toyo?

New Toyo (N08.SI) - Have they got their heads on?

Past couple months have been pretty boring hence the lack of new posts. However now that earnings season is in, let's have a look New Toyo (current price $0.24)

[Established in 1975, New Toyo International Holdings Ltd ("New Toyo") is a leading regional provider of specialty packaging materials to the tobacco, food & beverage, wine, liquor and cosmetics industries in Asia Pacific.

The Group has two core business divisions. Its Specialty Papers division focuses on the production of laminated foil paper, and coated paper and metalised paper, while the Printed Carton and Labels division offers mainly gravure and lithography or offset printing of packaging materials for cigarettes and fast-moving products. In addition, the Group has a trading business that focuses on tobacco packaging-related materials, as well as a corrugated cartons production operation.]

Business wise, in the past half year, nothing exciting has been happening to this stock. New Toyo still derives most of its income from Tien Wah (a printing company based in Malaysia) via tobacco carton printing contract with British American Tobacco.  Both revenue and earnings have had a dip and been trending down YearOnYear around 10% and share price has also accordingly been on a downtrend. Looking at the latest quarter, revenue seems to have started increasing again with earnings back to 1c+ a quarter.  This is likely due to closing down of operations in Australia and ramping up of production in Vietnam. This is now complete and we are very likely to see nice profitable quarters going ahead.

With annual EPS now at 3.34cents and quarterly EPS 1.03cent, it would be reasonable to expect at least 4c in the coming year. Wouldn't describe management as as prudent bunch or good with their investments, as history has shown with a "toilet paper" fiasco, which is now done and dusted, so we won't go into that. What is good now is that management is still consistent with their dividend payouts and has increased the half yearly 0.6c div to 1c. At current earnings rate this is both sustainable and generous with a total 1.6c for our investing troubles this year. That's a respectable 6.67% div yield soon to be paid out in May, and should interim be increased to 1c as well, we could be looking at 8.33% yield in half a years time.

Let's look at some current valuations in simple BlueFund fashion.
Market cap : 105 million
NAV : $0.386
Price : $0.24 (38% discount to NAV)
Net cash :  51.2 million (48.78% of Market Cap)
Dividend yield : 6.67% (based on 1.6cents, historically >1cent a year.)

NAV is $0.386 which provides a Margin of Safety of 38%.
Though debt is still 27.5 million, this is 5.1million less compared to last year and will likely be paid down more in the coming year. The cash balance of 79million will easily cover that and result in net cash of almost 12cents a share.

In the coming years, things are definitely looking good for New Toyo. This stock will likely be a profitable cash generator and we may even have surprises if NT decides to do something with the valuable Australian industrial land near to Sydney Airport and some lands in Malaysia as well. With the recent announcement of rights issue for Tien Wah, it does sound like something is in the books.

[author holds shares in this company]