Wednesday, 3 May 2017

The "Blue Sky" in China and the Rising Sun in Malaysia (Part 2 of 2)

Paper Mills in Malaysia, MUDA HOLDINGS BHD, is benefiting from "Blue Sky" Policy in China

1.Why? Shut down of Paper Mills in China

Paper mill is one of the affected industries in China, due to its high waste water discharged to environment. Paper mills in China is forced to shut down periodically. Up to date, 1/3 of paper mills production located in ZheJiang are idle, the supply of papers is cut down by at least 30 to 40%. While demand in China is remain high for their mainland internal consumption only. 

With reduced supply of raw paper, the price of paper has continued to rise.

Since November 2016, 16 paper manufacturers raised their prices by 100 yuan to 600 yuan per ton.

2.Why? Another Major Incident in USA
Other than China, one of the Major paper mills manufacturer in USA has faced the production disruption due to explosion and affected the paper worldwide supply.

Quoted from one of the Bursa Malaysia listed packaging company, Ire-Tex, Annual Report 2016

Quoted from:

3. Weakening of Ringgit against Renminbi

Weakening of Ringgit currency that hovered around at RMB 1.54 to 1.59  for past few months was another factor that turned some of the paper packaging companies to source cheaper papers from local. 

Muda Holding Bhd introduction

Muda Holding Bhd is the pioneer of the paper milling and packaging in Malaysia with their first paper mill in Tasek, Penang in 1964 and their first corrugator paper plant in Petaling Jaya in 1971. Today Muda own one of the largest integrated paper mill and corrugated plants in Malaysia.

Muda Group's Products

The shortage of paper supply in China will reduce availability of imported paper to Malaysia in Malaysia and boost the demand and selling price of the Muda’s paper.

Including a second progressive payment of RM13 million paid by the insurer to Muda Paper Mills on 17 February 2017, for the fire incident had occurred in 2016, we expected Muda is able to deliver a decent 1st quarter FY 2017 result which will announce on this May. 

However, the risks associated with the improving business environment.  

For instance, benefits of higher revenue was partially offset by higher raw material and energy cost. The increase in raw material cost is driven by tight supply from the domestic market (recycled paper) and also an upward trend in international price of the commodity. 

In countering such risks, the Group has invested in a new corrugating machine in the Kajang Plant, which will commence commercial production in the first half of 2017. The highly automated machine will reduce dependence on labour force and help improve economies of scale and profit margin.

Muda Holdings Bhd closed at RM 1.62 today (declaring 3 cents dividend on 28-Jun-2017). It's trading at PE 26 due to one time inventory write off event of fire incident last year. Put this one time factor aside, Muda Holdings Bhd, the only public listed Paper Mill in Malaysia is worth to take a look.

(Part 2 of 2)

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Next Growth Engines of Luxchem (Part 2 of 2)

Next Emerging Market-ASEAN, Vietnam, Particularly!

Luxchem has established their business in Vietnam since few years back. Their business has since grown from strength to strength and start to gain traction since year of 2015 followed by the incorporation and investment in Vietnam subsidiary. In the same year, Luxchem had successfully obtained an Investment certificate which allows Luxchem to commence business in Vietnam. 

Quoted from AR 2015

Why this License is Important for Luxchem?

With this license, Luxchem is able to sell their product to their customer in Vietnam directly and without "Middle Man". This is the win win situation for both seller and buyer, as Seller (Luxchem) will enjoy higher profit margin and sell the products at more competitive price and Buyer is able to procure the goods at lower price. 
From AR 2016, turnover in Vietnam had lifted 23% higher compared to FY2015. 

Again, why Vietnam?

As you can see from one of the comprehensive report about Vietnam Chemical Industry Outlook posted during year of 2016. Chemical Industry had achieved the high growth rate of 19.25% during the year from 2010 to 2014 and it is expected to grow substantially. 

The report further described,

"Chemicals ranked 11th among the top imported items in the country with a turnover of 1.94 billion US dollars and has just started to develop and met only 15-20% of demand meanwhile consumption in many areas every year are so high. Gaps in the market are also canvassed in detail, breaking the market into key components."

Quoted from

With such a demanding Vietnam market and followed by acquisition of Transform Master Sdn Bhd,  it has no doubt Luxchem could be able to continue gaining the traction and heading to their 10th consecutive growth financial year (expect for FY2012, slight decrease of 2 mil in turnover)

The price of Luxchem was traded at RM 1.56 with the PE of 8.5, DY of 4.3%. Margin of safety is relatively high for a growing business.

Comparing to its close peer, Sxxcxxx, with the price of RM2.28, PE of 20.76, DY of 2.6%. 

What say you?

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The "Blue Sky" in China and the Rising Sun in Malaysia (Part 1 of 2)

I was in Shanghai, China during January this year for 6 days company business trip. 
The factory location is at Jiangyin city 江阴, a 3 tier city nearby to Wuxi 无锡. 

My private car driver had taken me to Shanghai CBD area for quick city sightseeing before two hours of journey to Jiangyin city from Shanghai Pudong airport, 

Surprisingly, first photo taken at 2.30pm from The Bund, 外滩.

A thick layer of smog rolled into Shanghai, turning skyscrapers into shadows and clear sky into greyish fog. Smog in China has many causes, including pollution from heavy industries and traffic. But the scenario tends to happen more serious and often in the winter because of  plummeting temperatures cause coal fired/fossil fuel power plant demand to soar.

Situation getting worse on the way to smaller town .

Photo taken at 11 am, second day at JiangYin

Next day, see to believe on the root cause which has caused the air pollution. See below photo, power plant nearby to my vendor's factory, is burning tonnes of coal to power up the heaters to keep the city warm.

JiangYin Coal Fired Power Plant

Screenshot from Google map, Tonnes of Coal which keep at the open area of the size of around 50 football fields
To battle air pollution issue, China government has implemented series of actions under the plan called "Blue Sky" or 蓝天计划 which led the local government to order factories, some power plants and schools to shut/cut output. Steel mills, some under construction sites, paper mills are the victims under this plan.

(Part 1 of 2)

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