KUALA LUMPUR: Daibochi Plastic and Packaging Industry Sdn Bhd, which saw its earnings drop 13.5% year-on-year due to higher operating costs in its financial year 2014 ended December (FY14), expects to rebound with a higher profit margin this year with new export orders and fresh product lines.

Daibochi (fundamental: 1.5; valuation: 0.9) executive director Low Jin Wei told The Edge Financial Daily in an interview recently that the company is confident of recording a double-digit profit before tax (PBT) margin this year.

The cheaper ringgit against the US dollar is also good news to the company, said Low, as it means the company’s exports, in US dollars, will yield more ringgit.

“With the current climate, the outlook is quite positive and we are confident we can record a double-digit PBT margin. But we are still cautious going forward. There are a lot of uncertainties in the market,” he said.

He also said that the protracted slump in crude oil prices will translate into lower cost of raw materials, which constitute more than 60% of the company’s selling price of its products, thereby creating downward pressure on product prices.

“Some 50% of the company’s sales are in exports and these will continue to grow,” he said, but declined to give a forecast number due to the current uncertainties.

Daibochi is a manufacturer and converter of flexible packaging in Southeast Asia. It supplies packaging solutions for fast-moving consumer goods such as food and beverages, as well as pharmaceutical and industrial uses.

In 2013, the company recorded a PBT margin of 11.9%, with PBT at RM36.374 million, but the margin contracted last year to 9% as PBT decreased to RM31.06 million.

Last year, the company’s full-year earnings took a hit from higher operating costs, higher electricity tariff and higher wages, even though revenue increased 11% to RM344.5 million from RM310.3 million in 2013.

Daibochi had moved quickly to implement industrial electricity savers for its machinery, spending RM4.4 million on the retro-fitted devices which could reduce the machines’ electricity consumption by half or RM2 million annually.

Meanwhile, Low said the drop in crude oil prices since June last year had not translated into cheaper raw materials for the company last year. But he expects the downtrend to manifest in the next six months.

“Oil prices have been very volatile and very strongly downward in the last couple of months but we have not seen those kinds of reductions in our raw materials because we are a little bit downstream.

“So, whether it is the intermediary guy holding on to profits for as long as he can or something else, we don’t know but that is our main challenge this year,” he said.

Downward pressure on its margins notwitstanding, lower prices of raw materials, coupled with cost savings from energy efficiency and control of wastage, will also trim its operating costs, Low said.

Moving forward, the company is going to see new revenue from two new product lines that are going online for its existing multinational corporation (MNC) client, which will collectively bring it an annual income of RM18 million a year.

Low said the company’s strategy for the past five to six years is to continue to expand its customer base, particularly among MNCs in Malaysia.

“There are not many big multinational companies out there and Daibochi is serving quite a number of them already. To develop one new (product line) is opening up a huge amount of opportunity for us. So that will continue to be our growth strategy,” he said, adding that Daibochi currently caters to about 60% of the Malaysian MNC market.

Daibochi, he said, also plans to build up its capacity to allow it to take on larger customers and has invested significantly towards this.

It commenced operations of its newly-established manufacturing plant in Jasin, Melaka, in the second quarter of FY14, which is located near the company’s first plant in Air Keroh. It has since invested RM24.7 million in FY14 to equip both plants with new machinery.

This year, Daibochi has allocated RM15 million for capital expenditure, which will be channelled to the purchase of laminating and printing machines for its plants.

The counter closed at RM4.50 last Friday, up four sen or 0.9%, giving it a market capitalisation of RM512.42 million.

This article first appeared in The Edge Financial Daily, on March 9, 2015.