DPI Holdings sees virus-led opportunities

Tangkak, Johor-based aerosol spray paint manufacturer DPI Holdings Bhd. Executive chairman and managing director Peter Chai (right) and his son Adam Chai.

DPI Holdings Bhd is cautiously optimistic of continuing on its double-digit growth trajectory, as it leverages on the opportunities from disruptions brought about by the Covid-19 pandemic, says its deputy managing director Adam Chai.

The Tangkak, Johor-based aerosol spray paint manufacturer has seen stellar financial results, with its net profit jumping 85% year-on-year (y-o-y) to RM9.8mil, while revenue rose 37.6% to RM47.8mil for the nine months ended Feb 28, 2021.

For its third quarter (Q3) of financial year 2021 (FY21), DPI posted a 156% y-o-y jump in net profit to RM3.3mil, while revenue rose 40.4% y-o-y to RM16.3mil due to an increase in sales orders from new and existing customers.

This is also reflected in its share price which has jumped 285% from 16.5 sen a year earlier, to close at 63.5 sen on Thursday.

Adam explains that the stellar financial results in FY21 was due largely to an increase in both local original brand manufacturer (OBM) sales and overseas original equipment manufacturer (OEM) business.

The OBM segment involves three in-house brands, namely, Anchor, DPI 614 and Kromoto while the OEM segment provides private label manufacturing services (over nine OEM customers including six in Australia, Indonesia, Japan, New Zealand and Singapore).

Its customers include the automotive repair sector, DIY or do-it-yourself hardware stores as well as arts and crafts shops.

“The pandemic has caused disruptions in global supply chains, namely, shipment delays and production uncertainties. As a result, there is increasing preference from international brand owners in Asia Pacific to choose alternative supply chain channels. These products used to be largely manufactured in Europe and China. Now, they are seeking options to obtain supply from Malaysia,” he tells StarBizWeek.

Adam adds that DPI is now placing more emphasis on its branding and regional exposure to increase OEM opportunities.

“For OBM, it will be an emphasis on core product branding and expanding our current product range. The key is how we can improve manufacturing efficiencies and our laboratory capabilities quickly during such times,” he says.

In a report in December 2020, Hong Leong Investment Bank (HLIB) Retail Research notes that for FY20, the group’s OBM and OEM segments contributed 60% and 21% respectively to revenue, while the remaining 19% was contributed by the complementary products such as solvents and thinners.

DPI blends four types of thinners and trades over 20 types of solvents.

HLIB Retail Research highlighted that with a reputable track record over 38 years, DPI is well positioned to compete more aggressively in the international markets (export sales only accounted for 19% in FY20) in anticipation of rising demand for aerosol paint products, which is spurred by continuous urbanisation and motorisation, trade diversion from China to South-East Asia, as well as rising outsourcing amid the high compliance cost related to the manufacturing of aerosol products in developed countries.

Adam points out that for the first nine months of FY21, the group’s export sales increased 10% y-o-y (from RM6.75mil to RM7.44mil). “DPI is in a sweet spot where we can become stronger as we have accumulated the technical expertise to deal at this level due to our international portfolio. We have had a lot of enquiries worldwide and we are looking to see how we can supply to this sector better,” he says.

Meanwhile, surging commodity prices in recent months have resulted in DPI coping by increasing its prices early this year and doing larger bulk purchases to manage costs, according to Adam.

“We have a very long, almost 20 to 30 years, business relationship with many of our suppliers. This helps us maintain our competitive edge. Nonetheless, in the event of further spikes, we will adjust our prices accordingly,” he says.

Regarding the lockdowns and movement restrictions, Adam says business operations have been affected in terms of on-site marketing activities such as roadshows, exhibitions and events having to be put on hold or postponed, while the construction of its new factory has also slowed down.

“Our team has had to rearrange work schedules and allocate our stocks as fair as we can to ensure all our customers have sufficient stocks in the short term,” he says.

Still, he points out that the Covid-19 pandemic has also presented an opportunity for DPI to relook at how it needs to digitise and automate operations to improve efficiencies.

The group has 142 employees, and half of them have served for 20 to 30 years.

“With the wealth of experience, we have heaps of data that can be organised to transform how we can work and communicate better. For digitisation, internally we have adopted Google Workspace, HR Management System and we are looking at more (systems).

“Externally, our marketing activities are more active online through social media platforms and we have established an e-commerce presence through Shopee and Alibaba platforms.

“These may not be new technologies but to think that our company grew from just via word-of-mouth (without reliance on technology) to how it is today, is interesting. Prior to DPI’s listing, we were not active in marketing or branding activities.

“We used to rely on just product quality and reliability as well as distribution channels to grow,” Adam notes.

He also points out that the group’s factory employees are all Malaysians.

“As such, we do not have ESG or environmental, social, and governance issues related to foreign labour. As we enter into the next growth quantum, we may have some foreign labour.

“Nevertheless, we will still try to maintain a strong Malaysian core in our workforce. On the environmental front, we will look into the creation of more green products as well as aerosol products that use non-flammable propellants.”

In its 2020 Annual Report, DPI stated that it was establishing a range of cleaning and sanitisation products and has started producing anti-bacterial disinfectant spray. Adam explains that the group is looking to increase its sanitisation product range, although it has not started contributing significantly to its margins.

DPI’s roots dates back to 1982, when Adam’s father Peter, 77, who is the group’s executive chairman and managing director, had spearheaded its venture into manufacturing aerosol paints.

Since then, its production line-up has grown from only 30 to more than 300 aerosol paint colours.

According to the group’s website and 2020 Annual Report, DPI is a pioneer in the local spray paint market and supplies to over 700 distributors and retailers in Malaysia and over nine overseas private label customers.

It also offers private label manufacturing services, to customise and package aerosol products.

The group has automated production lines, blending and packaging capabilities and facilities coupled with onsite bulk propellant and chemical storage.

Adam, 44, points out that DPI is a well-established brand name in the local market for almost four decades and is known for premium quality products.

“Unknown to many, when we used to be a modest paint factory in the earlier days, we were contracted to manufacture for a Japanese company where quality control (QC) is of utmost importance. As a result of that experience, our QC continues to adhere to stringent international compliance standards,” he recalls.

Adam notes that DPI’s competitive edge lies in the wealth of experience of its people in both paint and aerosol segments.

“It takes skill and experience to produce a good quality aerosol product, especially so for paint, that can last through time. Unlike pump nozzle products, aerosol is a pressure canister with many precision parts within. It gets trickier with paint due to the presence of paint clogging concerns,” he explains.

“As a testament of our quality, we even visited a New Zealand customer who happened to have one of our unused aerosol can in possession that was manufactured 18 years ago. We are very happy to find out that the spray can could still be fully dispensed,” says Adam.

DPI was listed on the ACE Market in January 2019 at 25 sen.

Peter and Adam have a 74% collective stake in DPI.

From its listing proceeds of RM31.6mil, there is still RM25.9mil not utilised as at Feb 28, 2021 and the company plans to fully utilise this by January 2024.

About RM23mil of the listing proceeds is being utilised for the construction of a new factory with four fully-automated aerosol filling lines, which are expected to boost annual capacity to 20 million aerosol cans (from 9.7 million currently) and generate cost-savings benefits as well as improved efficiency.

While the group does not have a formal dividend policy, its dividend payout ratio has been 30% to 42% of net profit since its listing.

As at Feb 28, 2021, DPI has net cash of RM57.8mil.

“We have a sizeable cash reserve and close to zero debt. We continue to spend on what is necessary, and a large part of this will be used for capital expansion and international expansion. We have business activities in various countries internationally, some of which have been for decades. We continue to explore in places which we are familiar with and look not only to strengthen our presence there but also explore the development of premium and green products,” says Adam.

Regarding other growth strategies, Adam says they may involve overseas mergers and acquisitions activities.

“As my father and me are well travelled and familiar with the international business arena, we will leverage these experiences to expand the business throughout the region,” he says.

Adam points out that DPI is currently still working out the details on setting up a joint venture company in Japan, together with a local partner.

“Japan is interesting for us as a lot of good aerosol brand names originate from there. We see plenty of good opportunities. Since we already have prior experience working with Japanese company through contract manufacturing, we note it best to have an experienced native Japanese partner work directly on potential deals with the locals.”

On June 4, DPI proposed a one-for-two bonus share issue and the exercise is expected to be completed in the third quarter of 2021.

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