SCGM banks on new plastic cup line

The new plastic cup production line of SCGM Bhd for the food and beverage industry, is set to boost the company’s earnings.

Group executive chairman and managing director Datuk Lee Hock Seng says the Johor-based company invested RM12mil for the new operations, which involved the construction of a 60,000 sq ft building and a new single production machinery from Italy.

The new building is located at the company’s nine-acre site. The facility started operations in June.

“The single production line can produce up to 1.2 million cups per day or an average of about 300 million cups a year.

“We have started shipping out orders last month for the domestic and international markets,” Lee tells StarBizWeek in a telephone interview.

Lee is determined to push the bulk of the production to Australia, Singapore, Pakistan, Indonesia and Myanmar, apart from its existing markets in Portugal, New Zealand and the Middle-East.

For the domestic market, Lee says the products are mainly for plastic wholesalers and hawkers.

“The new product is expected to contribute between RM10mil and RM12mil in revenue for FY16 with full utilisation rate,” says Lee, adding that the production line is running at a utilisation rate of 50% now.

While there are many small players in the industry, the low-profile Lee is confident that the company stands to gain with the new high-tech machine.

He points out that the company has different pricing strategies for clients and this boils down to the number of orders at the end of the day.

“The weakening ringgit and low oil prices are plus points for us.

“The resin raw material costs have trended downwards,” says the 65-year-old, adding that its sales were denominated in US and Singapore dollars.

Aside from being the leading producer of thermo-vacuum formed plastic packaging like disposable plastic trays and containers, SCGM also produces airtight and watertight containers for the developed markets like Australia, the United States and Singapore.

For Malaysia, its market share is about 70%, while the export market stands at 46%.

Lee says developed markets are now looking for lower-cost quality options to meet their packaging needs and this has been the emerging trend.

So, coupled with SCGM’s aggressive marketing team, the company has seen new customers in its portfolio, Lee points out.

Being small cap company in the local stock exchange, SCGM has a dominant position in the industry, hands-on management team, above-average return of equity with little leverage and solid growth potential.

Going forward, Lee is optimistic that sales turnover for the new financial year will be improved, as it continuously source for new customers to sustain growth.

Listed on the stock exchange in 2008, the company offers dividend yields of around 4.44% at the current stock price of RM3.61.

And in the present volatile economic landscape, the stock is trading with a historical price earnings (PE) of 18.55 times.

While it has been constantly making profits over the years, for the fourth quarter ended April 30, 2015, its net profit doubled to RM5.14mil or 6.42 sen per share, from RM2.51mil or 3.14 sen per share, on better sales and foreign exchange gains.

For the full year ended April 30, 2015, its net profit jumped 36% to RM15.65mil or 19.57 sen per share, from RM11.49mil or 14.36 sen per share against a revenue that increased 6.3% to RM106.63mil, from RM100.3mil a year ago.

In view of the improved profit margins, SCGM declared the first interim dividend of five sen per share for the financial year 2016 (FY16) and decided to pay dividend every quarter from April, 2015 on wards.

In 2014, SCGM’s export sales expanded at a three-year compounded annual growth rate (CAGR) of 14% to RM43.8mil.

On the financial side, SCGM has a debt of RM3.9mil and cash and cash equivalents amounting to RM6mil as of April 30, 2015.

And since the company is moving towards automation, it will soon be capital intensive production from labour intensive.

Founded in 1984, SCGM is controlled by Lee, who has a direct stake of 10.88%, and an indirect stake of 22.05% held via his family vehicle SCGM Lee Sdn Bhd.

The stock has doubled from RM1.62 on Dec 15, 2014 to close at RM3.61 yesterday, with a market capitalisation of RM288.8mil.