SCGM’s growth in FY15 to surpass targets

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KUALA LUMPUR: SCGM Bhd, the country’s largest thermal vacuum forming plastic packaging manufacturer, looks set to surpass its target net profit growth of 10% for this financial year ending April 30, 2015 (FY15). Growth will be driven by new products and lower operating costs through economies of scale and automation. It will also be boosted by higher profit margins and selling prices, which have gone up in line with the minimum wage increase last year.

Chairman and managing director Datuk Seri Lee Hock Seng is confident the group will meet its internal target of achieving RM15 million in net profit for FY15 from RM11.53 million in FY14.

SCGM saw its net profit grow 13% to RM3.54 million for the first quarter (1Q) ended July, from RM3.13 million a year ago, on higher revenue of RM27.28 million from RM25.74 million.

Lee said while 1Q is traditionally its strongest, the difference in net profit between the four quarters is just RM1 million or RM2 million.

“We expect the group to record stronger 4QFY15 results as our new plastic cup production line comes onstream at our existing plant in Kulaijaya, Johor,” Lee told The Edge Financial Daily in an interview.

“Construction of the new plastic cup production line started in June this year and [it] will be operational in December. As such, its revenue contribution will just be four to five months for FY15,” said Lee.

Moving forward to FY16, however, contribution of the new production line to total revenue is expected to be significant, with a target of about RM20 million per year, he said.

For FY15, SCGM has allocated capital expenditure (capex) of RM11.6 million for machinery acquisition and construction of the new production line, which is complementary to the group’s current product range of disposable plastic trays mainly for the food, electronics and medical sectors.

Lee said the low capex has helped pull up the group’s profit yields, and while the current capacity utilisation is 90%, there’s still room for expansion at its Kulaijaya plant which spans 3.6ha.

He also noted that SCGM was in a net cash position with RM8.5 million in cash and bank balances and borrowings of RM1.9 million as at July 31, this year, allowing the group to undertake future expansion plans.

Already, SCGM is planning to offer ethylene vinyl alcohol (EVOH) packaging “very soon”, which will potentially be a major contributor to the group’s revenue, said Lee.

The group has started off by penetrating the Australian market with the EVOH packaging materials, which are more expensive than other food packaging.

“Australia has given us a purchase order for a trial run. Benefit from the EVOH packaging is that the shelf life of the food [is at least twice as long],” said Lee.

If this initiative is successful, Lee hopes to bring the premium EVOH packaging to Malaysia where he sees SCGM monopolising the market being the sole producer.

“Locally, it will take some time [to be introduced] because the value is higher. We are now focusing only on the Australian market. I see it (EVOH) starting to contribute to the group’s revenue from FY16. But we won’t know how big [a contribution] it will be [yet] because only certain customers use it,” said Lee.

Meanwhile, export sales are expected to surpass the local market by FY16. In FY14, it accounted for 43.7% of total sales.

Lee said the food sector will continue to drive the group’s future growth, which accounts for more than 80% of total revenue in FY14 and 1QFY15, followed by the electronics and medical sectors.

SCGM’s share price has surged 118% in the past 12 months from 89.5 sen on Oct 18, 2013 to close at RM1.95 last Friday, bringing a market capitalisation of RM156 million. Today, Lee and his family own 63% of the company, while its institutional shareholders include JP Morgan Chase Bank, MAAKL Progress Fund and Kumpulan Wang Persaraan (Diperbadankan).

This article first appeared in The Edge Financial Daily, on October 20, 2014.