Move to diversify product range and expand global presence

MUDA Holdings Bhd , a paper packaging company, will become the first in the country to produce machine-glazed paper for the food industry when its new RM90mil plant starts operation next month.

The low-profile company says the move is diversify its product range and expand its presence globally.

“Our bread and butter is still industrial paper and corrugated carton boxes that we produce at our paper mills in Kajang, Selangor, and Simpang Ampat, Penang,” Muda managing director Datuk Azaman Abu Bakar tells StarBizWeek.

Azaman says the construction of the new plant is divided into three phases, of which an initial RM34mil has been pumped in to build a 100,000-sq-ft facility and buy three units of machinery from Europe to make the glazed paper.

The new facility will be located near its paper mill in Simpang Ampat.

The group expects the first phase to begin its commercial run on July 1, which will see 18,000 tonnes of glazed paper being produced annually.

The second phase is scheduled to be completed by July 2016, to be followed by the third phase.

Once all the three machines are fully commissioned, Azaman says the plant could produce up to 60,000 tonnes of glazed paper a year. The company hopes to better its profit margins by 5% to 10% with the new product.

Azaman says there is rising demand for glazed paper, usually used to wrap and package food.

“We were the first to come up with the brown hawker paper about 25 years ago.

“And now, we are the largest supplier as we possess over 50% of the local market share,” said the 68-year-old, who has been with the group for 30 years.

The company has earmarked 80% of its new product for the export markets – Australia, New Zealand and South-East Asia.

With the glazed paper, which is made of 100% bleached pulp from Europe, the group plans to enter the medical packaging and textile printing industries, among others.

This will be followed by the Middle-East, he says, admitting that it will be tough to compete with the Europeans as they are the major players in the industry.

He says the local market for the glazed paper is not big enough and the product will do well in developed countries since it is widely used abroad.

Azaman says the company chose Penang as its base to produce the paper mainly because of the land available there.

Famously known as Tasek Mill, Muda Paper Mills sits on a 112-acre land, which makes it possible to build a new factory there.

Also, its subsidiary Muda Paper Converting Sdn Bhd that converts finishing products is located nearby.

The group has another paper mill in Kajang, Muda Paper Mills Sdn Bhd. This facility sits on a 80-acre land.

Other plants under its umbrella are Kotak Malaysia Sdn Bhd and KF Paper Product (Melaka) Sdn Bhd in Malacca, Muda Pacific Sdn Bhd in Johor, and Muda Packaging Industries in China.

Apart from its mills division, it also has packaging and converting, as well as marketing and trading arms. Both the mills and the packaging and converting divisions contribute 43% each to the group’s revenue. The remaining comes from the marketing and trading arm.

Challenges in the industry

The group has come a long way since its first paper mill was established in 1964 in Jalan Tasek, Penang, and its first corrugator plant was set up in Petaling Jaya in 1971.

Just like other industries, it has its own challenges like having to deal with wages that has been increasing since the Government introduced regulation on minimum wage two years ago.

Of its 3,000 employees, Azaman says 30% are foreigners.

As the bulk of its operations rely on waste paper, he says the local waste paper supply is not enough to produce the raw materials for corrugated carton boxes, boards or industrial paper. “So, we still have to import some,” Azaman adds.

While some paper packaging firms have been delisted over the years, Muda is known to be the biggest player by its market cap.

But it still has to compete with companies like Oji Paper Asia Sdn Bhd and Box-Pack (M) Bhd that produce corrugated cartons and boards. Oji is said to have about 25% to 28% local market share, while Muda owns 15%.

Muda chairman Tan Sri Lim Guan Teik, 80, has a controlling interest in the company with about 41% stake. His direct interest is 3.2 million shares.

The stock was at its 52-week high on July 24, 2014 at RM2.47.

The counter closed down 1 sen or 0.81% at RM1.23 yesterday, with 36,600 shares traded. This is equivalent to a yield of 2.44% and a price-to-earnings (P/E) ratio of 18.09 times, according to Bloomberg.