Muda Holdings not as upbeat as last year

TheEdge Mon, Jul 08, 2019 09:30am - 4 years View Original


PETALING JAYA: Paper milling and packaging company Muda Holdings Bhd is less upbeat this year than last year despite chalking up another record profit, as uncertainties over the US-China trade war remain high amid the slowing global economy.

“This year will not be bad, but just not as good as last year,” said group managing director Datuk Lim Chiun Cheong (pic). “There are a lot of uncertainties in the market, [and therefore] people and businesses are turning cautious.”

In an interview with The Edge Financial Daily last Friday, Lim said although the paper and corrugated carton market is essentially consumer-oriented, demand has slowed down noticeably compared with the last two years.

He also pointed out that China has been raising its waste paper quality requirements and cutting the quota of annual waste paper imports. As a result, many China manufacturers are moving out of the country, and Malaysia is one of their relocation destinations.

“From what I've heard there are at least four or five companies which have signed MoU (memorandum of understanding) agreements to move here,” said Lim, adding that one Chinese factory has already shifted to Malaysia.

If more Chinese manufacturers relocate to Malaysia, Lim is wary that Muda will be put in a tight spot as competition will be stiffer in the paper mill segment given that Chinese manufacturers have greater capacities.

Currently, Muda’s paper mills have a production capacity of 500,000 tonnes annually, said Lim, adding that Chinese manufacturers’ capacities could easily be three times more.

While not expecting to post the same level of earnings as last year, Lim is confident that Muda’s bottom line will not dip below the 2017 level.

For the financial year ended Dec 31, 2018 (FY18), Muda’s net profit grew 31.94% to a record RM77.53 million, from RM58.77 million in FY17, helped by lower cost of waste paper and better production cost control, coupled with better selling price of industrial paper and paper packaging products.

Revenue was up 6.61% to RM1.54 billion from RM1.49 billion on higher selling prices of industrial paper and paper packaging products.

In line with its sterling performance, the group will be paying a record-high dividend of 4.5 sen for FY18 on July 16.

For the first quarter of FY19 (1QFY19), Muda’s net profit slipped 1.78% to RM15.39 million, from RM15.71 million a year earlier, due to lower selling prices. Quarterly revenue was up 1.78% to RM378.23 million, from RM371.6 million previously.

Lim said Muda’s performance for 3QFY19 should be a good indicator of how well the company would perform for the full year.

He expects corrugated packaging sales to rise from 3QFY19 as customers begin to prepare for the Christmas season.

Lim is also hopeful that the trade truce reached between the US and China presidents during the recent G20 meeting will have a positive impact on the group’s performance.

Raw material costs are seen to be improving for Muda, which translates into better earnings, he said.

Using old corrugated cartons as main raw materials, Lim said prices have been favourable for Muda of late, dropping to as low as US$100 (RM414) per tonne from a high of US$280. Prices were at the US$140 level two years ago.

This year, Muda will see minimal capital expenditure (capex), for which the group has allocated RM12 million to replace an existing printing machine, said Lim. The group, he said, has already committed most of last year’s capex of RM104 million, mainly for capacity expansion and efficiency improvements due to higher sales.

With its recent expansion, the group’s corrugating plant capacity is expected to increase to 230,000 tonnes in the next two years, from 170,000 tonnes in FY18.

Lim noted that Muda’s three new plants are at only about 65% utilisation, while its two older plants are running at nearly full capacity. He explained that the new plants have higher capacity than the older ones.

Muda is also looking at expanding its paper bag business following Penang’s move to ban the use of plastic bags, although the segment has yet to contribute significantly to the group.

Lim said the company has spent some RM1.8 million on three machines, which will be operational either by end-2019 or early next year.

“In the next one to two years, we will pump in more money into this business segment.”

Incorporated in 1964, Muda’s paper business contributes to about 55% of the group’s revenue while another 40% comes from its carton segment.

In terms of markets, 89.3% of its sales are derived locally, while its export markets are Singapore (8.9%), China (1.5%) and Australia (0.3%).

Despite posting better earnings last year, Muda’s share price has been volatile this year, trading between RM1.09 and RM2.73.

After touching an eight-month high of RM2.13 on Feb 21, the counter has been trending downwards. Its share price has been hovering below RM2 since March to close at RM1.74 last Friday, bringing the group’s market capitalisation to RM530.79 million.

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