Nylex expects another year of double-digit profit growth

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This article first appeared in The Edge Financial Daily, on February 13, 2017.

 

KUALA LUMPUR: Nylex (M) Bhd, a dominant player in the chemicals, plastics and polymers business, is confident of achieving a strong double-digit profit growth for the second straight year notwithstanding the current economic uncertainty and volatile crude oil prices.

The group had reported a 51.02% increase in net profit to RM11.15 million for the year ended May 31, 2016 (FY16), after registering a 7.2% decline in the bottom line to RM7.39 million in FY15 from RM7.96 million in FY14.

For the first half of FY17, the group saw a 69.46% hike in net profit to RM6.58 million, from RM3.88 million in the same period of FY16. This is despite a 9.62% drop in revenue to RM587.51 million from RM650.08 million.

“The market condition [has] stabilised. Barring any unforeseen circumstances, the [FY17] earnings should be better than last year’s,” said Nylex managing director Datuk Dr Siew Ka Wei.

The group attributed the jump in FY16 net profit to better showing by its industrial chemicals division, which generated a higher profit before tax of RM11.9 million, against RM10.6 million in FY15, due to higher sales volume and improved margins.

Founded in 1970, Nylex is principally involved in investment holding and the manufacturing and marketing of vinyl-coated fabrics, calendered film and sheeting and other plastic products, including geotextiles and prefabricated sub-soil drainage systems.

About 89% of the group’s revenue is contributed by the industrial chemical division. Another 10% is derived from the polymer division, while the logistics division accounts for the remaining 1%.

Nylex currently has offices in the entire Southeast Asian region except for Thailand and the Philippines. It is now seeking to expand into the remaining two Southeast Asian markets.

“We are one of the largest distributors. We have been in the distribution business since 1982,” said Siew.

He said the group does not focus on any one type of business, with the diversified business serving as a “natural hedge”.

Siew added that the logistics division, which was incorporated into the group’s business model during the current financial year, would help Nylex integrate operationally and enhance efficiency.

“[With the logistics division], it will be a fully integrated operation and it can provide customers with a lot of convenience,” he said, adding that the group will enjoy a cost advantage and also save its time.

“We try to strengthen the supply chain, so that it can support the distribution division,” he said.

Looking back at the group’s performance over the years, Siew said profits continued to rise until 2008 when the oil prices continue to move up.

He said that during the global financial crisis in 2008, most businesses stop stocking their products in the Southeast Asian region but Nylex continued to stock its products and made good profits a year later.

“We are strong because we own tanks and we have long-term leases,” he added.

Last April, Nylex signed a contract for the construction and purchase of a chemical tanker. Constructed by Hakata Ship Building Co Ltd of Japan, the tanker sailed to Malaysia last month.

Nylex is in the process of getting the necessary certification for the tanker from Petrolium Nasional Bhd (Petronas) and going forward, it is expected to be contributing positively.

Nylex has cited the purchase of the tanker as the main factor for its borrowings amounting to RM126.27 million.

“Our net debt is considerably low compared with other companies in the industry. There was this one meeting that we had and the fund manager said that we under-borrowed and should borrow more,” said Siew.

On expansion plans, Siew said Nylex is looking at any business which is profitable.

The group, he said, will continue its focus on cost control measures and increase operational efficiencies in order to improve profitability of its manufacturing business for both the polymer division and the industrial chemical division, and consider new opportunities of expanding the distribution network for its distribution business.

Nylex’s share price rose 22% over the past year to 70.5 sen last Friday, with a market capitalisation at RM135.3 million. It is currently trading at a trailing 12-month price-earnings ratio of 9.63 times.

Siew said the share price is undervalued as the group’s net asset per share is at RM1.70. He added that the group’s market value should be around RM300 million.