Plastic product makers poised for better year

Friday September 4, 2009
By IZWAN IDRIS


They stand to gain from innovations and lower production costs

PETALING JAYA: It may be a tough year for the local plastic products manufacturing industry, with annual sales expected to drop 12% from a record RM16.24bil achieved in 2008.

However, a number of listed plastic product makers are on track for their best-ever year in terms of profits, as they reaped the benefit of product innovations and lower production costs.

“We had a good first half and the trend is sustainable at least for the rest of the year,’’ Tecnic Group Bhd executive director Ivan Gan told StarBiz recently.

Gan said this was due to cheaper resin costs compared with last year, while at the same time Tecnic managed to win “new customers and improve margins by providing value-added services’’.

For the six months ended June 30, Tecnic’s net profit jumped 65% to RM6.2mil from RM3.77mil in the previous corresponding period. Revenue improved 32% to RM61.4mil.

“The management has delivered a commendable track record by growing revenue and improving margins as guided,’’ Netresearch Asia said in a recent note.

Tecnic was projected to post a net profit of RM12mil for the year ending Dec 31, 2009 (FY09), the research firm said. That prediction, if met, will be the group’s highest profit so far.

“We believe the group will perform better in 2010 in tandem with the improving macroeconomic outlook,’’ Standard & Poor’s Malaysia (S&P) said in a recent report on Tecnic.

S&P projected Tecnic’s net profit would grow from an estimated RM11.3mil in FY09 to RM14.9mil in FY10.

Tecnic makes plastic beer crates, automotive parts and its own patented triple-locking pails used as lubricants packaging. The group’s clients are mostly multinational companies (MNCs).

At yesterday’s close, Tecnic has a market capitalisation of RM75mil.

Other companies in the industry that seem to flourish in these tough economic times are the plastic film makers that supply flexible packaging products mainly to large MNCs in the food and beverage sector.

Tomypak Holdings Bhd netted RM8.3mil in the six months ended June 30, which exceeded its full-year net profit of RM7.6mil in FY08.

The company attributed the strong results to “improved overseas market, higher sales of better quality products and lowest cost of goods manufactured over the past six months.’’

Bigger rival Daibochi Plastics and Packaging Industry Bhd made a net profit of RM10.8mil in the first six months on sales of RM113mil.

At the end of last year, Daibochi introduced a new sealing layer for its food and beverage customers that was cheaper to produce and speeded up packaging process.

“The management is confident that its current earnings trend is sustainable at least until FY10.

“This is given that orders are generally based on two-year contract terms and cost savings or increases are passed through directly on quarterly basis,’’ a local bank-backed brokerage said yesterday.

Annualising Daibochi’s half-year income would lift its full-year net profit to RM21mil. The group’s best year to-date was in 2003, when it made a net profit just shy of RM10mil.

Daibochi is the market leader in flexible packaging in the country, with an estimated market share of 30% to 35% based on revenue.

The company has a market value of RM108mil while Tomypak is worth RM56mil.