SCGM - when you expect more

SCGM (7247)

SCGM was established in 1984 through its wholly-owned subsidiary, Lee Soon Seng Plastic Industry Sdn Bhd, & is Malaysia’s leading thermo-vacuum form plastic packaging manufacturer. 

SCGM provides end-to-end production from extrusion to packaging & delivery to its customers in Malaysia & overseas. The Group has more than 60 well-known brands in its portfolio from various sectors including food, medical, electronics & others. The Group has strong in-house design capabilities to customise packaging according to customers’ requirements and has produced more than 5,000 moulds across various product categories. The Group owns the “Benxon”, “TempScan”, “TempScan Cover”, and “Kingtex” brands; with about 52 mould designs registered under the Intellectual Property (IP) Office of Singapore and 62 mould designs registered under IP Corporation of Malaysia.

SCGM has a wide distribution network of 30 distributors and exports to 20 countries.

• New Plastic Cup business to add RM15.1m in FY16 revenue. assuming the plant runs at full capacity for 9 months and it is able to produce c.1.1 million cups per day since production began in mid-July. As at 1Q16, management has recognised RM439k sales from this new business, targeting local & international markets (i.e. Singapore, Indonesia, Myanmar, Pakistan, Philippines). 

Sales pick up due to:-

(i) pricing is predatory, 

(ii) its cup quality is superior (i.e. more durable than existing brands). 

SCGM may purchase another plastic cup machine in FY16 (RM7m) should demand pick up.

• 1Q16 earnings were up by 38% YoY to RM4.9m mainly from overall stronger sales:-  

(i) on forex gains from USD & SGD sales, 

(ii) Hari Raya sales during the quarter, 

(iii) higher export sales from six new international customers from Japan, Indonesia & India

(iv) a small contribution from the new plastic cup business. EBIT margins improved by 3.3ppt to 20.3% on lower resin & transportation costs since oil prices declined in Nov-14. 

All in, net profit margins also improved further by 3.5ppt to 16.5% from better topline growth on forex gains, and lower input cost.

• SCGM is benefiting from low resin cost due to falling oil prices. The resin is sourced locally which MYR denominated, which gives them an additional edge in costing since most packagers source resin internationally or more from USD denominated suppliers. Although most packaging companies benefit overall from lower resin costs from lower oil prices, SCGM enjoys the additional advantage of having its major material cost-base i.e. resin, in MYR rather than USD, which will enhance its margins. Additionally, the favourable SGD & USD exchange rates are expected to boost export revenue which grew by 12.4% YoY in FY15, & 1Q16 export sales is already 28% of FY15, due to the weaker RM. Evidently, SCGM’s 1Q1 net margins were higher at 16.5%.

• The owner of SCGM holds more than 50% stake in the company via family members & SCGM Lee S/B, which aligns owners’ interest with shareholders as it encourages management to meet or even exceed the Dividend Payout Ratio. SCGM has already declared a 1st interim dividend of 5.0 sen for 1Q16, while dividends are paid out every quarter.

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