Manufacturing: Prospects bright for household products manufacturers

KUALA LUMPUR: Prospects are said to bright for household products manufacturers in the manufacturing sector, analysts observe, while companies with general underlying products offer stable outlooks.

According to AmInvestment Bank Bhd (AmInvestment Bank), in household product manufacturing, there is an increasing trend of trading up in the floor-care market.

The research firm noted that this would benefit V.S. Industry Bhd (VSI) and Denko Industrial Corporation Bhd (Denko) due to their ties with a renowned customer in the segment.

“The said customer has unveiled plans to invest heavily in research and development to support a slate of new product launches over the next few years,” AmInvestment Bank said.

“This will keep the order flow strong for VSI and Denko. In addition, the group’s customers are recently making waves in fast-growing markets, including China and South Korea.”

For chemicals manufacturing companies such as Luxchem Corporation Bhd (Luxchem) and Samchem Holdings Bhd (Samchem), AmInvestment Bank highlighted that the end-applications of their outputs are very diverse (general products).

As such, the companies offer relatively stable revenue growth, the research firm said.

“Notably, rising intermediate inputs in the construction industry and mounting glove demand due to stricter hygiene standards bode well for Luxchem.”

Meanwhile, AmInvestment Bank also highlighted that can makers have been affected by rising raw material costs.

The research firm noted that in the first quarter of financial year 2018 (1QFY18), the average cost of tinplates and paper rolls increased by six per cent and 11 per cent year on year (y-o-y) respectively, while the cost of aluminium foils spiked by 16 per cent y-o-y.

“This has been eating into the margins of our local can makers. Apart from rising material costs, the segment’s manufacturers are also faced with intensifying competition in the tin and aluminium can industries due to upcoming capacities from other regional players.”

However, in the longer term, AmInvestment Bank is positive on Kian Joo Can Factory Bhd (Kian Joo), given the defensiveness of the group’s top-line growth.

The research firm noted that this is underpinned by ongoing promotional efforts in the fast-moving consumer goods (FMCG) industry, to be further boosted by the abolishment of the goods and services tax (GST).

Kian Joo’s leading position in both two-piece and threepiece can industries, with local market shares of 60-70 per cent and 30 per cent respectively, is another reason the AmInvestment Bank is positive on the group.

Additionally, the research firm pointed out that Kian Joo’s Myanmar ventures will be coming to fruition from FY20F onwards, allowing the group to capture the country’s young demographic profile and manufacturing cost advantage.

Overall, AmInvestment Bank preferred manufacturers that are tied to household or general products, such as VSI, Denko and Luxchem.