[SCGM (7247) - AGM 2019 Details]

Important information from the company:

✅ The company's sales volume in 2019 increased by 6.8% year-on-year.

✅ Sales of the Extrusion business (13% of turnover) increased by 13.6%.

✅ Sales of other businesses (electronics, medical and other packaging) fell by 16.8%.

✅ The company signed a MoA with an Indonesian food packager in March this year to supply them with degradable food packaging, which will bring the company a turnover of 2.1 mil USD in two years.

✅ Although the annual turnover increased by 5.9% year-on-year, profits after tax fell by 131%. The decline in profit is mainly due to the increase in raw material prices and staff costs, increased interest expenses on borrowings, and impairment of accounts receivable due to accounting standards.

✅ SCGM mainly produces plastic boxes, not plastic bags.

✅ The company's new 600,000-square-foot factory in Kulai completed equipment handling, installation and officially start operation in 2019 Q4.

✅ The new plant installed 26 thermoforming machines and 13 extrusion machines.

✅ The current production capacity is 67.6 mil kg per year, which is an increase of 64.9%.

✅ At of now, the company is focusing to increase utilization rate of machines and expanding its customer base including domestic and abroad. After Polyron was banned and decomposable plastic lunch boxes for warehouses were lifted, the company increased the output of thermoform plastic.

Q&A Time During AGM:

1)
Q: After the equipment handling and installation of the new plant is completed, what is the company's forecasted optimal utilization rate? How long will it take to reach the optimal utilization rate? What actions will the company take to manage operating costs?

A: The best utilization rate now is about 70%, which we are expecting to achieve more in FY2020. At present, we have completely moved in and installed the equipment into the new factory. With the higher production capacity, we can enjoy a better economic of scale (the production cost per unit product is reduced due to the large production volume) with effective to control and manage our costs of production. On top of that, we have added automation to the new plant, it will allow us to enjoy higher output per worker.

2)
Q: Since 2017, the company intends to reduce the use of carbon materials and switch to the production of decomposable plastic packaging products. What is the goal for this year? Does the company intend to completely switch to producing biodegradable bags? What are the challenges in achieving this goal? What is the current market share of the company's products? How many export markets are expected in FY2020?

A: Let us clarify that SCGM does not produce plastic bags, and we are producing food packaging. Degradable plastic lunch boxes. For this environmental issue, we have not set specific goals. We are more focusing on education and participation. The main challenges we face are the slow response of customers to new products and the cost of transformation. As for market share, we did not make a formal estimate, so we cannot provide accurate data. However, we are the only company listed in Malaysia in this region. We also believe that there is still a lot of room for growth overseas, especially in Asia.

3)
Q: The company has signed a MoA with an Indonesian food packager. What is the current progress? What are the benefits and turnover expected to contribute to the company in FY2020?

A: We continue to meet customer order requirements, but this currently accounts is contributing a small turnover towards to the company. The company is having the advantage to enter the Indonesian market and expand customer base. This is helping our products increase awareness, and also an opportunity for to test the market potential in Indonesia.

4)

Q: Compared with FY2018's annual profit of RM 16.4 mil, FY2019's annual loss of RM 5.1 mil, when do you expect the company to recover?

A: FY2019 includes one-time handling costs. Based on larger production space and higher utilization rate, the company suffers higher damage and labor costs. It is important now that we have greater production capacity to increase our sales and turnover, as well as better manage our costs through economies of scale. We are working hard to focus on getting the company back to profit in the shortest possible time.

5)
Q: What is your opinion on the price trend of Resin (raw materials)? Will the company's depreciation continue to increase or decrease?

Answer: The cost of raw materials accounts of 60% for the company's cost. However, the price of Resin is beyond our control. All we can do is to reduce our operating costs through Economies of scale as much as possible. However, in recent months, we have seen that the price of resin has gradually declined, especially the last 2 contracts, which have fallen to very low point. At of now, we are focusing to increase the utilization rate. It is expected that the best utilization rate (70%) will be reached by the end of FY2020. Depreciation will continue at this level.

6)
Q: How often will the company's Resin be received? Do you have an advantage in price negotiation when you buy Resin?

A: Our Resin suppliers (several) are local and the prices are calculated on a monthly basis. Generally, we purchase goods once a month and a half, we do not store too much resin. In addition, we have a good relationship with resin suppliers, who will delay payment for us.

Louis Yap

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