We maintain our EPS forecasts but lower our target price as we roll forward to end-2015, applying a 7.8x CY15 P/E, a 40% discount (previously 30%) to Daibochi's 2015 13x P/E target. The larger discount reflects Daibochi's much stronger earnings track record. The stock remains a Neutral as earnings outlook is unexciting. We prefer Daibochi.

9M net profit down 17% 
Although 9M13 revenue was up 5.7% yoy, net profit fell by 17.3% yoy. The company attributed this to higher production cost, which we believe is likely due to higher raw material costs. This is not a good sign as its peer Daibochi (DPP MK, Outperform) did not experience profit declines during the same period. Tomypak's interim DPS was 2sen, in line with our expectations. YTD, 6sen DPS has been declared.

Profit gap widens 
Since 2009, Tomypak's annual net profits have been lagging behind its peer Daibochi. 9M13's gap in results is the largest yet, with Tomypak's net profit some 48% below Daibochi's. This is a negative surprise to us, as in the years prior to 2009, Tomypak's EBITDA margin were superior to Daibochi's. Daibochi said its better EBITDA in 2013 was mainly due to better waste control. In addition, we believe its new products, like the two-layer film and the high-speed film, offer better profit margins. Daibochi's management has always focused on product innovation to grow its business.

Strong balance sheet 
Tomypak's net debt was RM18.7m or 0.2x net gearing as at end-Sep. This allows the company to gear up if management is looking at a major capex to expand its production capacity. In addition, the company can afford a higher dividend payout ratio. 9M13's dividend payout ratio was 60%.

Source: CIMB Daybreak - 22 November 2013, Full PDF Report