Business

Saturday July 25, 2009

Manufacturers rely on Asia-Pac to boost sales

By DAVID TAN


EXPORTS to Asia-Pacific are expected to play a key role in boosting the revenues of public-listed companies involved in the manufacture of metal- and plastic-based products for the third and fourth quarters.

SLP Resources Bhd, for example, is expected to derive about 45% of its overseas revenue from the sale of plastic packaging materials in Asia, particularly to Japan and Indonesia, compared with about 40% last year.

Tong Herr's plant in Seberang Prai that produces stainless steel fasteners.

Managing director Khaw Khoon Tee told StarBizWeek the demand was from the food and beverage, medical products and chemical packaging sectors.

Demand was also growing in the automotive and sanitary industries, he said.

Khaw said the bulk of the group’s exported products were high quality plastic packaging materials that generated good margins.

“This is why overseas sales are important,” he said.

He added that the group did not immediately feel the effects of fluctuating resin prices because of the outstanding sales committed at a prior fixed price as determined by the market.

For its first quarter ended March 31, SLP posted a pre-tax profit of RM3.6mil on revenue of RM28.5mil, compared with RM2mil and RM48mil respectively a year ago.

Tek Seng Holdings Bhd is also counting on export sales to generate about 40% of its revenue for 2009, compared with 36% last year.

“Overseas demand is constantly growing due to the needs from countries such as Indonesia, which has a population of over 200 million.

“Preparations for the forthcoming Hari Raya celebration are spurring the local and foreign sales of our plastic flooring products.

“Orders from wholesalers and retailers are starting to pour in as they prepare to stock up their inventory,” said executive chairman Loh Kok Beng.

The group’s revenue and pre-tax profit for the first quarter ended March dropped to about RM30mil and RM31,000 respectively, compared with RM38mil and RM3mil in the corresponding quarter. This is due to the economic downturn and lower selling price of the products.

Loh said the second-quarter results, which will be announced in August, were expected to show slight improvement compared with the first quarter.

“We expect to maintain revenue this year at last year’s level of RM158mil,” he said.

Meanwhile, Unimech Group Bhd expects its export revenue to increase to about 40% this year from 35% last year, led by its operations in Singapore and Indonesia, according to assistant general manager Sim Yee Fuan.

“Our valve brand, Arita, is well-established in Singapore and Indonesia. High-end valves, which generate higher margins, comprise the bulk of our export and this should contribute significantly to revenue in the second half,” he said.

For the first quarter ended March 31, Unimech posted a pre-tax profit of RM3.5mil and revenue of RM27.7mil, compared with RM4.9mil and RM31mil respectively a year ago.

“The valve business is associated with industrial activities. Thus when there is a slowdown globally, there will be less industrial activity, resulting in weakened demand for products such as valves,” Sim said.

He said Unimech’s China plant exported about 40% of its valve and joint fitting products to the United States and Europe, which were experiencing a slowdown.

“The balance 60% is sold to the Asean region,” he said.

Sim said the demand in Malaysia improved in the second quarter compared with the two preceeding quarters.

“This is due to the increase in our product range and the improvement made in valve quality,” he said.

However, companies such as Tong Herr Resources Bhd, which exports over 95% of its products worldwide, sees sluggish sales continuing into the second and third quarters as its main markets have yet to recover.

“Between 60% and 70% of our products go to Japan and Europe, markets that have yet to recover,” said executive director B.L. Tan.

Its second-quarter result, due next month, is expected to reflect slow sales.

For the first quarter to March 31, Tong Herr posted a pre-tax profit of RM1.9mil and revenue of RM64mil, compared with RM6mil and RM99mil respectively in the previous corresponding quarter.

Tan said: “Our business is closely linked to the economic momentum, as the fasteners are used in infrastructure, transportation, construction and industrial projects.

“Thus the economic slowdown in Europe and Japan, where the bulk of our fastener products go, will affect our sales.”

He said the group had invested about RM45mil in manufacturing facilities in Prai Industrial Estate, Penang, and Bangkok, Thailand.

“The RM30mil plant next to the present facility in Prai and the RM15mil plant in Bangkok will commence operations in the first quarter of 2010.

“Both plants will produce a new range of fastener products, which will enable us to tap different market segments.

“The strategy to steer through an economic crisis is to offer a wide range of products to cushion the group from the impact (of the slowdown),” he said.

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