Kenanga showcased three companies during its recent Manufacturing Day. Firstly, HPPHB (OP, TP:RM0.53), a one-stop paper packaging printing and coating specialist servicing local and international clients based in Malaysia. Secondly, KPS (OP, TP: RM0.85), a regional player offering plastic-to-paper products to various clients. Last but not least is TGUAN (OP, TP: RM3.28), a pure plastic film player, and having outgrown the local market, it is venturing into Japan, EU and US to drive its future expansion. A top topic for Kenanga was how ESG is shaping the companies but other common themes have also emerged, including: (a) how external factors can create opportunity, (b) differentiation through excellence, and (c) despite concerns over economic slowdown, they are all adding manufacturing capacity or products range.

ESG - embrace, adapt and overcome. ESG has widened a company’s stakeholder list but how corporates embrace, adapt and benefit from ESG can be equally broad, from the use of more renewable energy to the introduction of new products. The concept of “recycling” alone can spawn multiple variations. We listened to how HPPHB turned paper packaging waste into a profitable line, namely paper pulp moulded products. Meanwhile, Century Bond, a paper packaging subsidiary of KPS sells moulded paper pulp products after recycling waste from its own manufacturing process (i.e. post-industrial waste), and reused paper cartons from group end-users (post-consumer waste). To cut single-use plastic, TGUAN practices zero post-industrial waste and even collects post-consumer plastic waste which is more challenging.

Diverse pickings from external developments. The export markets can be direct or indirect, either by servicing multinationals (MNC) or local manufacturers which then sell overseas. Regulatory changes in UK, where a tax of £200 per MT is now imposed on plastic packaging with less than 30% recycled plastic, is creating greater opportunity for TGUAN with its Maxstretch Green film exports. KPS, to support MNCs that are diversifying their supply chain from China, is relocating and expanding Toyoplas’ plastic moulding presence in Vietnam where cost is also lower. Aside from saving waste and cost, HPPHB aims to win moulded pulp paper orders from exporters which insert them inside printed and/or coated packages already supplied by HPPHB.

Excellence from R&D, innovation or acquisition. World class colour management, standardisation and printing using advanced hardware backed by superior service allows HPPHB to continue offering attractive one stop solutions whilst creating value for shareholders. For better margins, quality and returns, KPS at times opts for integration as illustrated by the recent acquisition of precision metal machining expertise in MDS Advance which already supply not only to KPS but other common customers as well. To raise recycled plastic content from 30% to 50%, TGUAN and ExxonMobil are collaborating to cut polymer performance variation when recycled material is incorporated using mechanical means.

Expanding despite cloudy economic outlook. Both TGUAN and KPS are either looking to add or have already added capacity recently. TGUAN has acquired another eight acres adjacent to its existing 16-acre site to cater for potential capacity expansion, by 2027. CPI, a KPS subsidiary focusing on engineered thermoplastics products is expanding its electronic manufacturing services (EMS) capability by 30%. Concurrently, HPPHB is broadening its product range and clientele.

Source: Kenanga Research - 16 Feb 2023