Demand for plastic packaging soars amid global economic recovery

by **Cals** Mon 04 Aug 2014, 02:07

Published: Saturday August 2, 2014 MYT 12:00:00 AM
Updated: Saturday August 2, 2014 MYT 6:49:19 AM
[size=40]Demand for plastic packaging soars amid global economic recovery
BY LIZ LEE[/size]
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Scientex Bhd at its premise in Shah Alam.
PLASTIC packaging manufacturers have on the whole seen stronger performance as evident in their latest financial results, as demand for plastic packaging ballooned in export markets amid the global economic recovery since the second half of last year.
Scientex Bhd, one of the top three stretch film players globally, achieved a net profit of RM99.6mil for the nine-month period up to end-April.
That figure is 24.5% higher than a year ago, which the company attributed to both its manufacturing and property divisions. Under the manufacturing business, the increase in revenue and profit was mainly due to the better sales performance achieved from the industrial packaging products and contribution from the consumer packaging products.
Revenue for the nine-month period grew by 37% from RM857.8mil a year back to RM1.175bil.

Of that, stretch film accounted for more than 50% of the group’s manufacturing revenue.
Managing director Lim Peng Jin says Scientex has been able to capture the growing demand from the Asia-Pacific region, as the company’s capacity expansion, particularly in industrial packaging, is continuously absorbed by the markets.
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[size=12]Lim: 'We will continue to improve productivity and efficiency'. Scientex's premises in Shah Alam.
The company, with a market capitalisation of RM1.26bil, completed the expansion of its stretch film operations towards end-2013 where it increased annual production capacity from 154,000 tonnes per annum to 194,000 tonnes.
“Apart from the market penetration strategy in existing and new markets, we will continue to improve productivity and efficiency to be cost competitive,” he tells StarBizWeek.
He says the group’s continuous investments in state-of-the-art facilities and innovative technology solutions have enabled it to achieve higher volume and better efficiency at lower costs.
One example of this is Scientex developing a new generation of thinner film via down-gauging the film from 12 to 8 micron and a next generation 6 micron film. The current industry norm is 23 to 15 micron film.
“By down-gauging, there is cost savings for the customers from using less packaging material,” Lim notes. This also translates to reducing the customers’ carbon footprint, which environmentally-conscious markets appreciate.
Kenanga Research says in a note on Scientex’s nine-month performance that while the rise in raw materials prices has affected margins for the manufacturing segment, the research house remains positive on the company’s longer term prospects.
Ongoing expansion plans for higher margin consumer packaging films and product extensions should provide added buffer against margin contractions while expansion of the blown film lines are on track and would spur revenue growth, it says.

Stretching the limit
While the demand for stretch film in export markets continue to grow, Scientex is not neglecting the opportunities in other promising plastic packaging segments.
Its consumer packaging segment has been earmarked as a high-growth potential business, according to Lim. That is no surprise, considering its better margins than stretch film.
The group has invested some RM70mil to increase its capacity by 50% for this segment, in anticipation of higher demand in the near future. Lim says Scientex’s expansion plan for the consumer packaging segment is on track for completion this year.
Through three company acquisitions last year, Scientex has consolidated its consumer packaging business under one roof – Scientex Great Wall Sdn Bhd.
The synergistic acquisitions were of GW Packaging Sdn Bhd, Great Wall Plastic Industries Bhd and Seacera Polyfilms Sdn Bhd.
“We can be the primary integrated full range products provider to our customers and have centralised raw material sourcing for better procurement benefits for suppliers.
“We foresee that the consumer film demand will continue to grow with the increase in the huge and growing population of over 600 million people in South-East Asia, rise of the middle class population as well as higher disposal income group in this region,” Lim says.
The urban population’s preference for convenience packaging, a heightened awareness of hygiene and food safety have also been contributing factors to the increased selection and volume of packaging applications the market demands.
The company follows internationally recognised stringent standards required especially on food safety in the food and beverage (F&B) industry to supply consumer packaging products to quality-centric markets in Europe, the United States, South Korea, Australia, New Zealand and Japan which in turn bring in higher margins as these are value-added products.
Another reason the consumer packaging segment beckons is its general resilience against economic downturns, particularly for the F&B and fast moving consumer goods (FMCG) sectors.
Lim points out that this dynamic product segment has had manufacturers increasingly switching from rigid packaging to flexible packaging to reap the benefits of greater flexibility and cost advantages.
Wary of the industry trends, Scientex has made strategic moves to tap the huge potential in the rapidly-expanding global F&B and FMCG sectors.
For its outlook on its manufacturing business, Lim says the company remains positive of its prospects for the rest of the current financial year, in the absence of any unforeseeable circumstances.
“We are continuing to seek new markets and new customers in Asia-Pacific emerging markets and selected European markets, while expanding our product range.”
Besides organic growth, Scientex continues to keep its eyes peeled for the next potential merger or acquisition, strategic alliance and joint venture.
As Lim sums it up: “Market size does matter in realising the vision of becoming a global market leader.”[/size]