KUALA LUMPUR: Nylex (Malaysia) Bhd expects a “challenging” trading environment for industrial chemical products over the next two years, amid increased competition from China companies.

“The [industrial chemical] market has been tough in the last few years as many cheap products have been coming out from the China market,” its group managing director Datuk Siew Ka Wei told reporters after Nylex’s annual general meeting here yesterday.

“We are cautious about the market [ahead],” he said.

On its part, Siew said the group is trying to preserve its earnings by handling more products at the same cost and reduce unnecessary costs.

“In addition, we must provide more value-added services to our clients,” he said.

Nylex posted a net profit of RM2.93 million for the first financial quarter ended Aug 31, 2014 (1QFY15), up 25.75% from RM2.33 million a year ago, on higher profit contribution from the industrial chemical division.

Revenue for 1QFY15, however, declined 13.93% to RM358.83 million from RM416.95 million a year ago on lower contribution from both the industrial chemical and polymer divisions. Siew said the group has started expanding the production capacity at its Surabaya plant in Indonesia, with completion slated in the first half of 2015.

“This plant expansion is part of our long-term plan to have a stronger presence in Indonesia where we expect better returns on investment,” he said. Siew said the company will also be extending their footprint in the Southeast Asia market, especially Vietnam, Indonesia, Thailand and the Philippines.

“We are looking for new and emerging markets for our business expansion,” said Siew, adding that the group is studying the Thai and Vietnam markets which he thinks offer lucrative opportunities.

“Thailand has a well-developed economy, with a huge population base. In addition, it has many factories processing chemical products into consumer products,” he said.

As for Vietnam, Siew said the potential lies in its huge population.

However, he expects its economy to only pick up in the next five to 10 years due to lack of economic stimulus from the Vietnamese government.

Meanwhile, Siew sees Nylex benefiting from the ongoing RM60 billion Refinery and Petrochemical Integrated Development (Rapid) project in Pengerang, Johor, which is expected to give a boost to demand for industrial chemical products.

“The manufacturing sector is poised for a boom from the Rapid project and it will spur the demand for chemical products to grow as the project moves along,” he said.

This is credit positive for Nylex, which distributes petrochemical and industrial chemical products, Siew added. However, Siew declined to say how much the group will benefit from the project, except that the profit margin for chemical products range between 3% and 10%.

“The market is changing everyday, and this is something I cannot tell you,” he said.

This article first appeared in The Edge Financial Daily, on November 21, 2014.