SLP Resources to increase capacity and boost revenue

by **Cals** Tue 12 May 2015, 02:53

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[size=12][You must be registered and logged in to see this image.]Seang Chuan says Japan accounts for more than one-third of the firm’s revenue, management sees risk in a depreciating yen. Photo by Sam Fong
KUALA LUMPUR: A strategic decision to automate its production lines has helped SLP Resources Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) increase its capacity by 12%, with double-digit revenue guidance for the financial year ending Dec 31, 2015 (FY15).
Its group managing director Kelvin Khaw Seang Chuan said the group’s focus is on the automation of its production lines this year, which will result in its total production capacity increasing from 1,700 tonnes per month to about 2,000 tonnes per month by August this year.
“The automation will boost our current production capacity, which should help the company turn in double-digit percentage growth for the top-line this year,” he told The Edge Financial Daily in an interview.
The automation comes as the cost of hiring rises in Malaysia. On Jan 1, 2014, SLP Resources implemented minimum wages for the first time.
Seang Chuan said SLP Resources had decided to invest in automated packing machines to reduce its reliance on workers.
The plastic packaging manufacturer reported a 7.8% revenue growth in FY14 to RM174.44 million from RM161.84 million the previous year. Net profit grew 7.9% to RM12.13 million from RM11.24 million in FY13.
SLP Resources executive director Jasmine Khaw Choon Hoong, who is the sister of Seang Chuan, said the next two years will be “exciting times” for the group.
“We’re excited about 2015 and next year’s expansion plans. We’re getting very good feedback from our customers [on our range of products]. We are expecting 2015 to be a good year not just for us but for the plastics industry as a whole,” she added.
Seang Chuan said SLP Resources (fundamental 2.4; valuation 1.3) is eyeing markets in the African continent to further mitigate its risk towards the Japanese yen.
“It’s always in our plan to expand beyond the Japanese and Malaysian markets. Although Japan accounts for more than one-third of our revenue, management sees risk in a depreciating yen.
“We’ve been exporting several products to the coastal countries of West Africa. We see that they are very interesting markets. When these nations develop, there will be tremendous potential there. So if you ask me, our plan is to look outside the Asia-Pacific region, to emerging nations,” he added.
In addition to exploring other markets, the group has come up with a new plastic packaging product solution called “MaxInFlax” which would help reduce the thickness of its plastic sheets without compromising on the quality of its plastic sheet and provides cost savings to its customers.
MaxInFlax currently has two product types which are plastic films created for cement bag packaging and standard kitchen plastic bags.
With a market capitalisation of RM262.17 million, Seang Chuan is aware that SLP Resources could be a takeover target and said the group is open to opportunities.
“We’re open to acquire and to be acquired. We’re open to any opportunities. The trend of the industry is to go into consolidation. But before that happens, we still want to grow the group. We welcome any ideas for any opportunities,” he said.
On prospects for the year, Seang Chuan predicts that average prices of plastic resins will be lower than 2014, which will help lower the cost of raw materials and contribute to an increase in earnings.
“The supply of crude oil is still more than demand due to US exploration. Going into 2015 we still see that crude supply is in excess and resin is a by-product of crude. Overall, if we average out the prices, plastic resins cost would average around US$1,200 and US$1,300 per tonne this year which would be lower than last year’s US$1,500 per tonne level.
“That works out to about a 10% to 12% reduction in cost,” he said.
The group will also place more emphasis on its manufacturing business as it sees better margins in this area compared to its trading platform.
On the possibility of a corporate exercise involving a rights with bonus issue, Seang Chuan said: “We’ve no intention to do so at the moment, but we do not want to keep investors at bay. The chances are there. We’re finding a way to make all parties happy. [There are] no firm decisions for now,” he said.
According to Bloomberg data, the Khaw family held a 66.07% stake in SLP Resources as at May 8, 2015.
Year-to-date, SLP Resources shares have risen by 77.97%. The stock closed up 6.6% to RM1.05 sen last Friday.
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This article first appeared in The Edge Financial Daily, on May 11, 2015.[/size]