SCGM sales strong on demand for ‘lifestyle’ packaging

This article first appeared in The Edge Financial Daily, on January 8, 2018.
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KUALA LUMPUR: After nine straight years of record-breaking sales, thermoform food packaging manufacturer SCGM Bhd expects the momentum to continue amid growing consumer demand for “lifestyle” packaging.

The Johor-based group is confident of posting a double-digit revenue growth for the year ending April 30, 2018 (FY18).

Group sales rose 33.9% to RM178.8 million in FY17, after a 25% jump to RM133.5 million in FY16. Net profit, meanwhile, rose 14% to RM23 million in FY17 from RM20.19 million in FY16.

SCGM believes the thermoform industry will remain strong because people are going for hygienic packaging and a healthier lifestyle, said managing director Datuk Seri Lee Hock Chai.

“We believe that the demand for this ‘lifestyle’ packaging will be the way to go in the market. That will be our impetus for growth,” Lee told The Edge Financial Daily.

SCGM’s thermoform plastic packaging products are microwaveable and biodegradable, decomposing after five years, thus making it an attractive environment-friendly choice for food packaging.

With some states in the country imposing a ban on plastic bags and polystyrene products, thermoform products have emerged as a viable alternative. While SCGM is present in all states, being present in those with the ban has significantly helped, said Lee.

Johor is the latest state to impose the ban, with effect from Jan 1, and the group expects sales to pick up there.

SCGM produces a wide range of products. Its thermoform lunchboxes, especially, have attracted strong demand in the Klang Valley, prompting the group to set up a manufacturing factory in Teluk Panglima Garang, near Klang, in July last year. The 47,000sq ft plant will have a total extrusion capacity of five million kilograms (kg) a year.

SCGM has also commissioned six production lines adjacent to its main production facility in Kulai, Johor which will be ready for operation by the end of 2018. This will add 11 million kg per annum to the existing 25 million kg extrusion capacity there.

Having invested RM153 million in the two new factories, Lee said he is confident the group’s output would steadily increase, allowing SCGM to cater to export markets, which the group wants to place more focus on.

The group’s revenue is currently contributed by a 70:30 ratio from the domestic and export markets respectively. Moving forward, as it taps into new markets, the group intends to shift the ratio to 60:40, said Lee.

SCGM’s export markets include Singapore, Indonesia, the Philippines, Myanmar and Australia. Lee hopes to further tap into the region, as well as other untapped continents.

“We are looking into the US and Africa as the next [area of] growth, in the medium term,” said Lee.

Meanwhile, in addition to catering to the growing lunchbox market, Lee notes there is now an increasing demand for frozen food packaging, as consumers are turning to quick meals easily cooked in the oven or microwave.

“This sort of demand for pre-cooked or frozen food is still very new in Malaysia. It’s not something that people are familiar with. If you look at Family Mart today, many of its customers are Caucasians, foreigners or tourists rather than locals. They are already accustomed to the novelty of microwaveable food or ready-to-eat food sold at stores such as this.

“We believe, moving forward, the demanding lifestyle and commitment of the middle-aged population will gear towards this trend rather than cooking at home. If you look at Hong Kong, it has a 70% takeaway rate. Singapore is about at a 30%-40% rate,” said Lee.

He said the group is already catering to this segment but expects demand to pick up in future.

Lee said the current financial year has been dubbed a consolidation phase for the group. While this includes expansion plans to cater for increased capacity production, it also includes other structural changes to management and even setting up a new talent development programme to prepare its workforce for the demands of Industry 4.0.

“With this transformation we believe we are prepared for the next growth level, giving us a good competitive edge. While costs may increase temporarily and margins may be affected, I believe the structural changes in place will help us sustain continued growth in the long term,” Lee said.

For the second quarter of FY18, SCGM reported a 3.1% fall in net profit to RM5.26 million from RM5.43 million a year earlier, due to a change in sales mix and higher cost of raw resin and other raw materials. This is despite revenue rising 24% to RM52.11 million from RM42.02 million.

On the higher cost of resin, Lee said he is not too concerned about it as resin prices are expected to stabilise over the months, with any increase being passed on to consumers.

SCGM’s share price closed unchanged at RM2.40 last Friday, giving a market capitalisation of RM464.6 million.