PETALING JAYA: The manufacturing sector in China has been undergoing rapid transformation amidst weaker demand domestically and global headwinds.
Manufacturers, particularly in the plastic segment, have intensified efforts into expanding overseas while being supported by their own government through incentives and exhibition subsidies.
Many have pivoted into Asean markets, including into Malaysia, notably after the Covid-19 pandemic, US tariffs, and rejection from European markets due to stricter environmental, social and governance requirements.
According to Kenanga Research, this has resulted in strong price competition regionally – putting pressure on Malaysian plastic packaging producers as Chinese players prioritise capacity utilisation.
In a report, the research house said after visiting the Shanghai World of Packaging, it was becoming clearer that China’s prolonged price-based “involution” is evolving into an “involution” on quality.
However, Kenanga Research said local players have responded to this and were not sitting idly by.
“Thong Guan Industries Bhd
has geographically diversified into European and US markets and has also grown their food and beverage business while venturing into property development.
“Scientex Bhd has also long diversified and established a steady property arm,” the research house said.
It added that BP Plastics Holding Bhd is investing in additional blown-film production lines to enhance product value-add for clients.
Meanwhile, SLP Resources Bhd continues to expand into niche, higher-value product segments and selectively entering markets.
Kenanga Research said on the domestic front, it has noticed an increase in players venturing into the customised bag segment as a way to diversify income streams.
“We observed more players venturing into the bread bags segment as a way to diversify their income streams.
“Having said the aforementioned developments in relation to shrinking margins and competing business expansion plans, we now foresee an increasing likelihood of potential mergers and acquisitions or consolidation initiatives within the sector moving forward,” the research house added.
It noted that it will keep its “neutral” call on the sector while having an “outperform” call for Thong Guan Industries.
On a separate note, the artificial intelligence theme was also noticeably more relevant, as Chinese manufacturers use it across numerous aspects.
“Interest and investment in the sector’s innovation were focused specifically on automation for machinery and labour processes, as China’s labour costs have risen by more than 500% over the past two decades,” Kenanga Research noted.
