Financial Highlights

The following table sets out the key financial highlights based on the historical audited combined financial statements for the Financial Years Under Review:

• The revenue is not growing consistently this is because of the decrease in orders from major customers and also the impact of the MCO.
• The gross profit margin is consistently above 28% also means that the company has strong bargaining power over its products/services price. (Generally, a GP margin of 20% is considered high/ good).
• PAT margin is in the range of 11% to 17%.
• The gearing ratio is 0.21 times, it is good if a company is under a low debt however, moderate leverage leads to better use of a company’s capital. The company can still get some debt to maintain the gearing ratio within the safety range (A good gearing ratio should be between 0.25 – 0.5).

Major customer and Supplier

Major Customers

The Group’s top 5 major customers for the Financial Years Under Review are as follows:

According to the details, the top 5 customers are around 475%. The management mentioned they are dependent on the top 5 customers due to the quantum of their contribution to its revenue. The loss of any of these major customers, if not replaced in a timely manner, would adversely affect its financial performance. However, the length of the relationship of most customers is over 15 years, which also shows the strong relationship between the company and its customers.

Major Suppliers

The Group’s top 5 major suppliers for the Financial Years Under Review are as follows:

According to the details, the top 5 suppliers are around 84%. The top 1 supplier contributes 30.66% out of all purchase contributions. This shows that the company will have strong bargaining power with the suppliers, however, if they are too dependent on a few suppliers they might face risk when the supplier meets any operational issue.

Industry Overview

According to Vital Factor Consulting’s research, in 2021, the import value of paper cartons grew by 24.9% to RM 481.5 million, contributed by 29.2% and 17.7% growth from corrugated and non-corrugated cartons respectively. The growth was mainly due to the high paper prices during the second half (H2) of 2021. In 2021, the main importing country into Malaysia for both corrugated and non-corrugated cartons was China, accounting for 59.3% and 60.1% of the total import values of corrugated and non-corrugated cartons respectively. For the first 9 months of 2022, the import value of paper cartons grew by 8.7% to RM 370.2 million, contributed by 6.4% and 13.0% growth from corrugated and non-corrugated cartons respectively compared to the corresponding period in 2021.

In 2021, the export value of paper cartons grew by 29.3% to RM 551.0 million, contributed by 33.1% and 23.9% growth from corrugated and non-corrugated cartons respectively. Similarly to the import values, the growth was mainly due to the high paper prices during H2 2021. In 2021, the main exporting destination was Singapore, which accounted for 47.1% and 34.1% of the export value of paper cartons grew by 16.2% to RM 458.7 million, contributed by 12.3% and 22.5% growth from corrugated and non-corrugated cartons respectively compared to the corresponding period in 2021

The market size of the corrugated carton industry in Malaysia and the market share of DS Sigma Group are estimated below:

Source: Vital Factor Consulting

Business strategies and prospects for DS SIGMA HOLDINGS BERHAD

The Group’s business strategies and plans are summarised below:

1. Expansion of operational facilities
2. Purchase of new machinery and equipment
   1. Automated and robotic packing machines
   2. Honeycomb board machines
   3. 6-colour flexographic printing machine
3. Establish packaging design and innovation centre
4. New target markets

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Opportunities

1. Maintained a high gross profit margin. This means that the company is very flexible in terms of pricing. When the market is not good, the company can also rely on price cuts to stabilize sales and maintain profitability.

Risk

1. High-concentration client risk. The company is dependent on a concentrated group of major customers and the loss of any of these customers may affect its financial performance.
2. The company is susceptible to a shortage in the supply of input materials. The main input material namely corrugated board is sourced from local suppliers in accordance with the production schedule. This input material is essential to the manufacturing of corrugated paper packaging products, and the company would require a continuous and stable supply of such input materials from the suppliers.

Click here to refer the IPO -DS Sigma Holdings Berhad (Part 1)

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