PublicInvest Research

Author: PublicInvest   |   Latest post: Tue, 27 Jul 2021, 9:33 AM


SCGM Bhd - New Kulai Plant Commissioning Soon

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We came away from SCGM’s analyst briefing yesterday with some encouraging takeaways amid concerns in relation to increasing cost pressure and unfavourable foreign exchange. The new Kulai plant, which has a total extrusion capacity of 62.6m kg/year, is completed pending the issuance of Certificate of Completion and Compliance. It is on track for commissioning by end of this year. The additional extrusion capacity of 26.6m kg/year is timely for the company as existing plants are running at almost maximum utilization rate while there will be a surge in demand from Johor following the ban on polystyrene effective this year. Maintain Outperform call with an unchanged TP of RM2.47.

  • Moving into the new plant in the next three months. Management guided that it will start moving from its existing plants in Kulai into the new plant over the next three months. It will also spend RM33m on the installation of new machineries. Upon commissioning of the new Kulai plant, it will expand the group extrusion capacity by 73% to 62.6m kg/year. Apart from the lunchboxes and cups, the company also plans to expand into other degradable products such as bowls and plates.
  • All core segments continued to grow. F&B segment, which made up 80% of total group sales in 9MFY18, delivered an encouraging growth of 26.4% YoY to RM6127.4m in 9MFY18. The growth in F&B was mainly backed by a surge of 163% in lunchboxes and steady contribution in cups (+14.3%) and general plastic packaging products (+15.9%). Extrusion segment also performed well with a strong growth of 24.1% while others, which is made up of electronics, medical and other packaging and sales to general traders delivered a growth of 31.2% to RM12.2m. Both local and export markets continued to show positive growth, up 37.8% YoY and 10.1% YoY, respectively. The encouraging results were led by an addition of 103 new local customers and 11 new international customers (Australia, Indonesia, Singapore and Nigeria) in 9 months.
  • Imposing price revision to counter higher resin cost. Management explained that FY18 would have been a strong year if not because of the sharp increase in resin cost. It would have seen an increase of 41.9% YoY and 20.6% YoY for the respective 9MFY18 and 3MFY18 earnings after stripping out the FX changes and hike in resin cost. It incurred additional of RM5.9m on the resin cost in 9M FY18 and RM1.7m for the 3QFY18. Nevertheless, management has decided to revise up the prices of selected products by 5% effective this month to cushion 5-6% increase in polypropylene (PP) resin cost during the 3QFY18.
  • Expecting another lacklustre results in 4Q. As the positive effect is only expected to be felt in March, 4QFY18 results are likely to remain lackustre. The continuous rise in resin cost is likely to give some additional cost pressure on the earnings margins.

Source: PublicInvest Research - 15 Mar 2018

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