Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on September 21, 2020 - September 27, 2020

NOW that the ceiling price of a three-ply face mask in Malaysia has been reduced to RM1 effective Aug 15, does it make sense to venture into the business given the possibility of a further cut?

Local listed companies that have diversified into the segment are unfazed by the ruling, assuring that their margins remain lucrative and planned production capacity expansions remain on schedule.

To mitigate the business risks, Komarkcorp Bhd has been exploring business opportunities in the overseas markets as it only recently started production.

“We are in talks with potential overseas customers in the US, Europe and Australia, where we can sell at higher prices, so it is not really our concern,” chief operating officer Koh Chie Jooi says of the lower ceiling price.

He adds that Komarkcorp masks will have value-added features, but declines to share the details as the product will only be launched by the end of the month.

A packaging machinery and self-­adhesive label maker, Komarkcorp operates two production lines in the initial stage with an output capacity of 2.5 to 3 million pieces a month. An additional four to eight lines will be added upon confirmation of product quality.

Koh believes the face mask business will yield double-digit profit margins, and also increase revenue from Malaysian operations by 50% to 80% for the financial year ending April 30, 2021 (FY2021).

Revenue from the local business in FY2020 amounted to RM17 million.

Koh also thinks the weaker US dollar can be offset by higher selling prices in overseas markets.

As for property developer and tourism player Iconic Worldwide Bhd, its managing director Datuk Tan Kean Tet sees minimal impact as the company was already selling its standard three-ply face masks at around RM1 per piece before the new retail ceiling price was enforced.

If the ceiling price is reduced further, Iconic will look at more ways to reduce costs.

“For example, we are searching for the best price-to-value ratio by conducting price comparisons of different sources and suppliers while still being able to maintain the safety and quality of our products.

“We will also be looking at optimising our operations system to reduce wastage and maximise productivity. Finally, we aim to increase the cost effectiveness of the products by adding more manufacturing lines for mass-market production.”

Tan reveals that face mask manufacturing contributes less than a quarter of Iconic’s total revenue, as it is still in the midst of expansion.

“Currently, we are producing 30 million pieces per annum. We are planning for further expansion to increase the production to 222 million pieces per annum.”

He opines that any further reduction in the ceiling price is not necessary, noting that it would impact local manufacturers as there is a large supply of face masks from China priced as low as 30 sen a piece.

Consequently, local manufacturers will struggle with costs and may be unable to supply the market with better premium and reliable products.

“Since the government has acknowledged that there is no longer a shortage of face masks, local manufacturers need to be given sufficient breathing room to continue producing face masks that guarantee safety and quality.

“We also believe that consumers have the right to choose based on their needs, and any further reduction in prices will have an adverse impact on consumers as choices will become more limited,” he adds.

SCGM Bhd managing director Datuk Seri Lee Hock Chai also believes the company will be able to manage its costs and selling prices, owing to lower prices of non-woven fabric — a material used in face mask and protective gown manufacturing.

According to non-woven fabric manufacturer Tek Seng Holdings Bhd executive director Loh Eng Chun, its non-woven fabric has seen a 150% to 200% price increase since the outbreak of the pandemic and its products are booked till December.

Lee says SCGM has obtained approval to export to Singapore to fulfil overseas demand, thus reducing “overproduction” risk.

“Our strategy is to maintain the production of face masks, as with scale, we can achieve better cost efficiency in face mask production. Besides, demand is still expected for face masks as they are now a new staple, with people adapting to the new normal in light of the Covid-19 pandemic.”

He says SCGM recently purchased four new face mask machines to boost production to six million pieces per month from 1.2 million pieces at present.

The face mask segment contributes less than 5% of the vacuum thermos-form packaging products manufacturer’s total revenue.

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