GEORGE TOWN: SLP Resources Bhd is counting on its exports to Australia and Japan to drive the group’s top and bottom line in 2019, as domestic demand continues to contract.
Group managing director Kelvin Khaw sees lower demand from the domestic sector.
Domestic sales contribution is projected to contract to around 32% this year from over 40% in 2018.
“We saw the contraction in January and thought it would pick up as Hari Raya approaches due to the demand from the local food and beverage industry. But it did not,” he said.
SLP will now work on increasing its exports to Japan, Australia, Thailand, Singapore, New Zealand, and which are its key markets, where the demand from the retail, industrial, dairy, and household sectors is still strong.
Khaw said that based on orders locked in so far, about 25% to 30% of the group’s shipment to overseas market comprised value-added thin-gauged and recyclable polyethylene packaging materials.
“These niche products should drive the contribution of overseas sales to about 65% and impact positively on our bottom line this year.
“We expect a high single-digit growth for its net profit in 2019,” he said.
Khaw said based on orders secured so far and customers’ forecast, the group expected to rope in 9,000 tonnes of packaging materials with an estimated value of RM100mil, based on today’s international selling price.
“Currently, the international market price is around US$2,800 per tonne for the higher grade packaging products, while the normal grade is around US$1,800 per tonne,” he added.
Khaw said the key factor driving the growth of global flexible plastic packaging market is the cost-effectiveness and increased shelf-life of the product.
“Packaging manufacturers are steadily searching for less expensive substitute material for packaging to minimise the rising costs and raw materials and price volatility, which subsequently leads to the high production costs, which in turn reduces the profit margin for them,” he added.
On risks, to minimise exposure of the foreign currency exchange risk, the group hedges its US dollar sales proceeds through foreign currency forward contracts whenever it sees forward contracts having potential benefits to the group.