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.

Quoted from: http://www.thestandard.com.hk/section-news.php?id=178282

Quoted from http://www.chinapaper.net/news/show-22163.html

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: http://www.pulpapernews.com/2017/01/pulp-digester-exploded-at-ip-s-pensacola-mill

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)