This article first appeared in The Edge Financial Daily on November 14, 2018

KUALA LUMPUR: Scientex Bhd and Daibochi Bhd announced yesterday a halt to share trading today, sparking expectations of a possible takeover bid by Scientex for its smaller rival.

Investors will be on the lookout for an offer to be extended by Scientex for Melaka-based Daibochi, which supplies packaging solutions for fast-moving consumer goods such as food and beverages, as well as those for pharmaceutical and industrial usage.

“A merger between upstream player Scientex and Daibochi, which is more into downstream activities, makes sense,” an analyst declining to be named told The Edge Financial Daily.

“Looking at its past manoeuvres, it is not unusual for Scientex to pursue inorganic growth to increase scale, market position and profitability,” the analyst added.

In separate filings with Bursa Malaysia yesterday, the two plastic packaging companies said Bursa Securities had approved their request for the suspension pending the release of a material announcement.

Scientex, helmed by managing director Lim Peng Jin whose family now owns 56.61% of the company, is no stranger to acquisitions. The group has snapped up several rivals in the past 10 years, including Great Wall Plastic Industries Bhd, Seacera Polyfilms Sdn Bhd and Mondi Ipoh Sdn Bhd, to become the largest stretch film producer in the Asia-Pacific with a market worth RM4.24 billion. More recently in May, it completed its acquisition of Klang Hock Plastic Industries Sdn Bhd for RM190 million.

Lim told The Edge Malaysia weekly in an Oct 15 interview that Scientex plans to step up acquisitions at home and abroad as it moves ahead with its Vision 2028 strategy, to hit RM10 billion in revenue by 2028.

According to Daibochi’s annual report 2017, its major shareholders include its former executive director Low Chan Tian owning a 10.32% stake as at March 31, 2018, Apollo Asia Fund Ltd at 9.37% and Lim Koy Peng at 8.46%.

Daibochi delivered its best-ever revenue of RM388.6 million in the financial year ended 2017 (FY17), growing 4.7% from RM371.2 million in the previous year. Net profit for FY17 was also up 5.8% to RM25.93 million from RM24.52 million in FY16.

For the first half ended June 30, 2018, Daibochi’s net profit rose 2.9% to RM11.13 million from RM10.81 million a year ago. Revenue grew 16.7% to RM211.11 million from RM180.95 million.

Scientex shares fell 13 sen or 1.48% at RM8.67 yesterday. Year to date, its share price has fallen 2.6%.

Daibochi shares, meanwhile, closed one sen or 0.51% higher at RM1.99, with a market capitalisation of RM651.42 million. Its share price has dropped 13% from RM2.28 on Jan 2.