SCGM Bhd, a food and beverage (F&B) plastic packaging company believes the Covid-19 pandemic has permanently altered consumer lifestyle habits especially with regards to dining out.
Covid-19 has caused an surge in demand for food delivery and take away from eateries and along with its recently established personal protective equipment (PPE) business segment, SCGM is generally a net beneficiary of the pandemic.
“The transformation of food deliveries in the country amid the pandemic have provided well-needed convenience to the community, and will mostly likely stay relevant even in a post-pandemic era, ” SCGM’s managing director Datuk Seri Lee Hock Chai tells StarBizWeek.
SCGM, which recently saw a strong jump in earnings, thinks that this performance is sustainable moving forward based upon this assumption.
“Our gearing towards value-added customisable F&B packaging instead of standardised F&B packaging will also better cater to consumer needs and preference and will ensure revenue sustainability to the group, ” Lee said.
SCGM recently reported that its net profit for the third quarter ended Jan 31 almost doubled year-on-year (YOY) to RM8.1mil while revenue rose by 21.1% to RM62.53mil in the same period.
Basic earnings per share for the most recent quarter rose to 4.21 sen from 2.17 sen while net tangible assets was at 96.8 sen per share.
The group sees this upswing in demand sustaining and is planning to invest a further RM20mil in capital expenditure to expand its production capacity and customer base in its F&B packaging segment, which is still its core business.
It is expecting more demand growth to come from its export markets, Lee says.
“Our export sales have increased 11% to RM21.8mil YOY in the recent third quarter from RM19.6mil. Our current main export markets include Singapore, Australia, Philippines, Indonesia and New Zealand, ” he says.
“For export growth, we will continue to focus our efforts on larger overseas sales orders by up-selling and cross-selling our products to existing overseas clients. We will also strive to target other distributors and manufacturers in our existing export countries to expand our footprint in those markets, ” Lee adds.
Its packaging business had also seen a commendable growth in the local market and Lee says that there has been a strong uptake for its bento boxes and bakery trays, as new norms have increased the instances of takeaways and deliveries.
“Even public events now are required to offer individual takeaway boxes as mass buffet services are no longer allowed. These factors helped push local sales by 27.3% to RM40.8mil in the third quarter from RM32.0mil a year ago, ” he says.
Its planned RM20mil capex will go towards the the purchase of new machinery to expand its F&B packaging production capacity.
Lee notes that the group has been achieving strong operating cash inflow for the past few quarters, which allows the company to fund its expansion.
“Moreover, as we managed to improve our net gearing to a healthy 0.34 times as at Jan 31,2021 from 0.53 times as at April 30,2020, we do have the capacity to take on new loans to finance the capex, if necessary, ” he says.
Its PPE segment that was established slightly over a year ago has already broken even but the group still considers this a non-core business.
“The PPE business which comprises the sales of face shields and face masks contributed only around 1.3% of the third quarter’s group revenue. We invested RM1.2mil in machinery and recorded RM3.4mil in the sales of face masks and face shields as at nine months ended Jan 31,2021, ” Lee says.
“We view the PPE segment as a mid-term venture as demand should still be sustained as long as the vaccination is underway and has not yet covered a critical mass, ” he adds.
Moving forward, the group is optimistic on delivering a better net profit to shareholders this financial year and possibly also the next.
The recent announcement in its financial results had helped to fuel some gains to its shares which had added some 20% in a span of slightly over a week.
It last traded at RM2.22 on Friday’s close.
“We are working hard to achieve revenue growth in the 2021 financial year (FY21) by addressing the strong demand from F&B customisable packaging, in line with the rise in packaging usage within the community, ” Lee says.
“With the increase in group revenue, as well as reduction in operating expenses after consolidating our Telok Panglima Garang plant with our single, larger plant in Kulai, we are optimistic on seeing profit improvements for FY21, ” he adds.
SCGM expects adjustments in its packaging average selling prices due to higher resin prices which will be able to support the group’s FY21 bottomline.
The group hopes that the planned capex expansion would in turn help contribute positively to its subsequent financial performance in the following year.