Plastics firms stretching for growth

This article first appeared in The Edge Malaysia Weekly, on July 13, 2020 - July 19, 2020.
-A +A

FOOD packaging comprises the largest sector in the US$900 billion-a-year global packaging industry. Plastics — rigid or flexible — are used not only in food service packaging, but also for groceries and household supplies.

Notably, Scientex Bhd, SCGM Bhd, Thong Guan Industries Bhd and Tomypak Holdings Bhd are among Bursa Malaysia-listed plastics companies with direct or indirect exposure to the food and beverage (F&B) and fast-moving consumer goods (FMCG) sectors.

As the Covid-19 pandemic reshapes certain megatrends in the packaging industry, these companies have been urged to readjust their focus and market approach.

According to global management consulting firm McKinsey & Company, there have been dramatic shifts in consumer channels, rising hygiene and consumer-safety concerns, as well as disruption of end-markets, including hospitality and restaurants, owing to stay-at-home orders.

“When the world emerges from the Covid-19 pandemic, packaging companies will need to raise their performance in multiple ways — balance sustainability goals with stringent hygiene requirements, step up their e-commerce games, and compete in a novel customer landscape while facing strong cost pressures,” McKinsey says in a May report.

Captains of the plastics industry concede there are plenty of business opportunities out there, thanks to the rapid growth of food delivery and e-commerce.

However, environmental concerns and activism against the use of plastics remain potential risks for the industry, thus they will be looking at not only expanding production capacity, but also developing sustainable packaging.

 

Capturing growth opportunities

Scientex CEO Lim Peng Jin says the group will continue to implement strategies to capture growth opportunities by increasing capacity and capabilities, introducing more value-added and sustainable products, and broadening its product portfolio and markets.

“In our converting segment, which serves the F&B and FMCG sectors in Malaysia and regionally, we have committed RM60 million to purchase 13 new manufacturing lines to come onstream over the next six months, with plans for another eight lines in the future,” he tells The Edge.

Scientex is one of the world’s largest producers of industrial stretch film and exports to more than 60 countries. Since 2013, it has emerged as one of the country’s largest producers of consumer packaging products.

Sales at its manufacturing division saw a slight decline during the Movement Control Order (MCO) period, largely sustained by its continued supply of flexible plastic packaging (FPP) to a broad range of sectors, including F&B and FMCG.

“In the manufacturing division, we navigated new challenges during the MCO, where we needed to swiftly adapt our protocols to ensure smooth operations under reduced manpower conditions. This was made possible by certain automation in our operations, which underscores the importance of continued investments in this area,” Lim explains.

While economic headwinds may continue to linger in the near term, he reiterates that Scientex’s growth strategies have allowed the company to continue building a resilient market position and to capture more growth opportunities in the future.

“Among potential risks are the environmental concerns and activism towards plastics use. In this regard, our research and development to develop more sustainable FPP would position us at the forefront in continually supporting the needs of major brands in line with global sustainability trends,” he says.

Meanwhile, SCGM Bhd managing director Datuk Seri Lee Hock Chai observes that the group saw a higher number of orders from its core F&B clientele during the MCO period.

“We currently have backlog orders of up to one month. We have seen a double-digit increase in orders for certain F&B products, such as the bento series lunch box, during the MCO period. The increase in demand is in line with the takeaway trend and higher preference for ready-to-eat meals,” he tells The Edge.

SCGM is one of the country’s largest thermoform F&B packaging manufacturers. It provides one-stop plastic packaging solutions to customers in the F&B sector in Malaysia and overseas, as well as the medical and electronics industries.

Backed by its plastic extrusion capabilities, SCGM expanded its product portfolio to include face shields in February and face masks in May.

“This expansion is both timely and necessary in order to urgently provide frontliners with essential equipment to combat the Covid-19 pandemic in Malaysia. It also leverages our existing distribution channel of medical products,” Lee explains.

Leveraging the rising consumer trend of takeaway and ready-to-eat meals, SCGM also aims to focus on growing its customised F&B packaging business, including tailored product designs, tamper-proof packaging and eco-friendly solutions.

“We have restarted talks with brand owners and suppliers to expand our customised F&B packaging footprint in targeted export countries in Asean countries, such as Cambodia, Indonesia and Myanmar, as well as the Middle East and the UK,” Lee says.

With a new, 600,000 sq ft plant in Kulai, Johor, as well as growing demand for F&B packaging and medical products, he says, SCGM has the industry skills as well as capacity to grow its business further and improve its financial performance.

 

Surge in demand

Over the past few months, plastic manufacturers have benefitted not only from rising food delivery services and takeaways, but also packaging for cooking oil, says Thong Guan Industries Bhd executive director Alvin Ang See Ming.

“There was a major surge in demand in Indonesia. When people stay at home longer, they don’t eat out; they cook more and consume more cooking oil,” Ang tells The Edge over the phone.

Thong Guan produces lamination film and exports stretch film to Europe and the US, mainly for the beverage industry. Apart from that, it is the largest exporter of garbage bags to Japan.

“The demand in these regions is quite stable. People no longer drink at the bar; they drink at home — mineral water, soda, juices, milk and beer. You need shrink film to wrap these canned and bottled beverages. We also see higher demand for courier bags and garbage bags,” says Ang.

He explains that, in general, plastic manufacturers focusing on medical and food packaging should do well this year, but those that focus on electrical and electronics (E&E) and general packing may not perform as well, as the economy is heading towards a recession.

“Generally, Thong Guan should be doing okay this year. Last year was a record year in terms of profitability. This year, we hope to achieve another record year,” Ang says confidently.

It is worth noting that the Kedah-based group is not just a pure plastics player but has been involved in the manufacturing and trading of tea, coffee and other beverages under the 888 brand since 1942.

Ang says Thong Guan’s F&B business saw a reversal in trends, with higher demand for smaller packs. He recalls that, before the virus outbreak, there was a sharp drop in commodity prices, and the group was thinking about reducing selling prices.

“But as the pandemic hit, the demand for small packs of coffee and tea, kopi uncang and kopi-O shot up like crazy, although that was offset by the significant drop (in demand) from mamak outlets and restaurants. The good thing for us is that the profit margin for small packs is higher than large packs, so net-net, the reversal in trend is favourable to us,” he explains.

Tomypak, a plastic flexible packaging (PFP) producer headquartered in Senai, Johor, also sees opportunities from rising demand resulting from the new norm, as people are buying more packaged food.

“There has been higher demand over the past three months, compared with the same period in prior years. Customers are also providing forecasts [for orders] for the next three to six months. This will facilitate more efficient production planning and procurement of raw materials,” the company tells The Edge via email.

Considering that Tomypak is primarily in F&B — a growing segment — it expects this year to be better than last year, not only for sales, but also for operational improvements from the transformation programme put in place in 2018.

“We expect demand for our products will continue to be strong. As the market evolves towards the new normal, there will be more opportunities to move from traditional to safer and more hygienic packaging,” it says.

Tomypak adds that shareholders will be able to see better financial results in the coming years, as a substantial part of the transformation programme has been implemented.

“This should result in much better performance. The company also hopes the trend towards more hygienic food packaging, compared with paper, will mean a larger growing market,” it says.

It adds that the plastics industry is expected to experience better growth in the immediate future.

“Naturally, with our new factory and enhanced capacity, we hope to be able to meet the expected market growth. Flexible packaging deploying new plastic-based materials that are more resistant to viruses will experience an increase in demand,” it concludes.

 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.