New ruling on plastic benefits SCGM

SCGM Bhd, a company based in Johor that manufactures disposable plastic lunch boxes, is a beneficiary of the recent change in food packaging rules in Selangor.

“Demand has been on the rise and our revenue outlook looks good. I think we will record strong double digit growth in the financial year ending April 30,” chairman Datuk Seri Lee Hock Seng (pic) tells StarBizWeek.

“Demand is great and we cannot afford to shut down our manufacturing plant during the Chinese New Year break. There is a two-month wait for new orders that we receive. There is increased demand for disposable lunch boxes and cups due to new food packaging regulations in Selangor,” he says.

Some food retailers such as hawkers have been charging an extra fee of up to 70 sen per container when packing food for consumers, adding to unnecessary end-costs and causing the latter to resort to bringing their own food containers.

Commenting on this matter, Lee notes that a disposable lunch box container costs below 20 sen when it is sold from the factory to the wholeseller in the supply chain.

“This will depend on the wholeseller. Different ones have different agreements. Some can be on the upper range of below 20 sen while some others can be on the lower range of below 20 sen,” he says.

Lee believes that demand will continue to remain strong noting that there was a shortage of producers for disposable lunch boxes and cups.

“We are now eating up a bigger proportion of market share due to shortage in producers. Importing from overseas takes a longer turnaround time after factoring in shipping times,” he says.

He adds that profit margins for the disposable business are “slimmed down” and will be slightly lower than for the usual clients that have their products specially ordered and specially designed.

Because of this, SCGM will be pumping a record amount of money toward disposable lunch box and cup manufacturing with capital expenditure (capex) being allocated for the construction of a new plant that will cost some RM80mil.

“Additional new machines such as extrusion machines, thermo forming machines will be purchased due to the strong demand for our disposable lunch boxes, cups and other trays. The additional capex for machines will be RM33mil for FY18 and FY19. In total our capex will roughtly be RM113mil for this expansion,” Lee says.

“We have already spent a part of this expansion capex amount in FY17. The financing part of this expansion is funded through the recent private placement while we use bank borrowings for the plant. It is expected to be complete two years from this calendar year,” he adds.

He notes that the industry could be on the verge of a very rapid growth phase.

“Everyone was previously using polystyrene containers to pack food. What I gather is that many polystyrene players are rushing to switch over to the new technology to produce the disposable lunch boxes. The old polystyrene machines cannot be used anymore,” Lee says.

“A good quality machine must be sourced from Europe to get better quality end products.

“I did my own survey and there were eight main companies producing polystyrene at the end of last year with a RM500mil revenue per year.

If there is an eventual conversion for everyone to switch over to disposable lunch boxes the industry sales for it could double or triple that because of the higher cost per unit,” he adds.

He says the market potential for disposable lunch boxes is very big especially if more states eventually adopt this environmentally friendly regulations to switch over from polystyrene.

“It will take time for the industry to grow, and not all states will immediately ban polystyrene,” he says.

He says that now the industry is also moving toward a more environmental friendly with a new regulation recently introduced by SIRIM Bhd to ensure all plastic players are environmental friendly.

“We will comply with this and will soon apply for the certification to go green. This will ensure that plastic produced from our plants that goes to our landfills will degrade into micro plastic and be easily absorbed into the earth again,” he says.

While the regulation is voluntary now, it is expected to be made compulsory within a few years, he says.