Raw material output gives SCGM an edge

DESPITE operating in an uncertain global economic climate, SCGM Bhd is confident its capability to produce raw materials will enhance its competitive edge in the international market.

SCGM, a plastic packaging product manufacturer, is en route for a listing on the second board of Bursa Malaysia on Feb 28.

Group executive chairman and managing director Lee Hock Seng said the group had extrusion machinery to transform plastic waste into resin and semi-finished raw materials such as plastic sheets.

“We have two lines of extrusion machinery. After listing, we will add one more line of such machinery.

“With a third extrusion line, we shall be able to increase our savings on production costs to 30% from 20%,” he told StarBiz after the recent launch of SCGM's prospectus to investors, analysts and merchant bankers.

According to Lee, the group needed to buy 70% to 80% of the resin used in the manufacturing process.

“Because we are able to save on production costs, our after tax profit for financial year ending April 30, 2008 is expected to hit RM8.5mil compared with RM6.1mil a year ago.

“Our 2008 revenue is expected to reach RM67mil from RM49mil in 2007,” he said.

He said about 40% of the group's revenue is derived from export of packaging products to Singapore, the Middle East, Europe, Australia and the United States.

“The bulk of our packaging products are the thermo vacuum forming trays sold to food industries.

“Besides the food industries, the electronics and medical sectors also used our packaging materials.”

The group's plastic packaging products are sold under the brand Benxon.

Lee said a majority of its overseas sales came from Singapore.

“This is an important source of revenue as we can earn Singapore dollars, which is a very stable currency compared with the US dollars.

“Many of our customers, even those from Europe and the Middle East, prefer to use the US currency to pay us, as it is more cost effective for them due to the depreciation of the US dollar,” he said.

On SCGM's competitors, Lee said the quality of plastic packaging products from China was not consistent, although their pricing were cheaper.

“In Thailand, most of our competitors do not have the ability to produce their own raw materials.

“Thus they cannot compete effectively with us in the global market.

“Within Malaysia, companies in the same business as SCGM are smaller in size and do not have our competitive edge,” he added.

Lee noted that the demand for well-design plastic packaging materials was constantly growing.

“This is because attractively designed packaging materials helps to sell products.

“We customise and design our packaging materials according to the needs of our customers,” he added.

In 2006, the plastic products manufacturing industry generated about RM15.bil in revenue, representing an annual growth rate of 9%.

“The industry contributed 2.5% to the country's gross domestic product,” he said.

SCGM, with 31 forming machines at its RM30mil automated plant in Kulai, Johor, is the leading thermo-vacuum formed plastic packaging manufacturer in Malaysia in terms of number of forming machines used.

Of the total sales value of thermo-vacuum formed plastic packaging material industry estimated at RM125.6mil, SCGM commanded a market share of 31.7%, Lee said.

Lee said the company's Kulai plant was now over 90% utilised. “We have a plan to set up another plant in Johor soon,” he said.

On overseas expansion, Lee said the group was looking to set up an upstream manufacturing facility in Thailand to produce semi-finished raw materials such as plastic sheets.

“The facility, which we plan to set up in 2010, will support those industries in Thailand manufacturing thermo-vacuum foaming plastic product,” he said.

For its initial public offering (IPO), SCGM is offering 12 million new 50 sen shares at an issue price of 78 sen each.

Some six million shares will be made available to the public, 4.5 million for eligible directors and employees, and 1.5 million for private placement.

Lee said the company hoped to raise RM12mil from the IPO and the proceeds would be used for its expansion programme, including buying new advanced machines.

Founded in 1984 by Lee and his brothers, SCGM started from a rented two-storey shop house in Kulai. About eight years later, it moved to the present facility.

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