This article first appeared in The Edge Financial Daily, on March 18, 2016.

KUALA LUMPUR: News of British American Tobacco (Malaysia) Bhd (BAT) shutting down its manufacturing plant in Petaling Jaya may jolt the shareholders of Tien Wah Press Holdings Bhd, which specialises in printing services for tobacco packaging.

BAT is Tien Wah’s major customer. The cigarette maker’s decision to source tobacco products from its sister companies in the region instead of producing locally could have repercussions for Tien Wah’s earnings going forward.

In 2008, Tien Wah, together with its major shareholder, New Toyo International Holdings Ltd, successfully bid for a seven-year exclusive supply agreement, with the right to extend for an additional three years to supply BAT’s printed carton requirements in Australasia, Vietnam, Singapore and Malaysia.

“This agreement was subsequently extended on Nov 13, 2014 for an additional one year from the existing period of seven years ending Oct 31, 2015 to Oct 31 this year and the continuing right to extend for an additional three years. Fulfilling the demands spelt out in this agreement now represents the group’s core business,” said Tien Wah in its official website.

However, an investment fund manager noted that BAT’s move to cease production in Malaysia may not be that detrimental to Tien Wah, given that the exclusive supply agreement between the two for the supply of printing and packaging material lasts until 2019.

Interestingly, Tien Wah announced to Bursa Malaysia in August last year that it had tied up with a Singapore-listed property developer, Lum Chang Holdings Ltd, to redevelop the parcel of land where its office and production plant are currently located on. Both parties have signed a memorandum of understanding on the joint development.

The announcement may indicate that Tien Wah might have already gotten wind of BAT’s shutdown plan, and that the company already has an alternative plan in place to brace for the move.

In fact, cash-rich Tien Wah last month proposed to undertake a renounceable rights issue of 48.25 million new shares at an issue price of RM1 per rights share on the basis of one for every two existing shares. The rationale for the cash call was to expand production facilities in Indonesia and the Middle East.