Household product manufacturers still preferred over can makers

KUCHING: Household product manufacturers are still preferred over can makers, AmInvestment Bank Bhd (AmInvestment Bank) said in its latest manufacturing sector report.

According to AmInvestment Bank, household product manufacturers such as VS Industry Bhd ( VS) and ATA IMS Bhd (ATA IMS) would benefit from the rising trend in trading up in the floor- care market, particularly due to their ties with a key customer in the segment.

“The key customer has robust growth prospects and continuously innovates - planning a slate of new product launches over the next few years, which is anticipated to keep boxbuild orders growth sturdy.

“However, we believe that the positive earnings prospects for both companies have been factored in at their respective share prices,” the research firm said.

On can makers, AmInvestment Bank highlighted that this segment has been affected by rising cost pressures.

It pointed out that when comparing the first nine months of 2018 ( 9M18) with 9M17, the average prices of raw materials such as aluminum, tin plate and paper roll escalated by 12 per cent, five per cent and eight per cent year on year ( y- o-y) respectively.

“This has been eating into the margins of local can makers including Kian Joo Can Factory ( KJC). Apart from higher raw material costs, the group also faces intensifying competition in its corrugated carton space and looming competition for its tin and aluminum can industries due to upcoming capacities from other regional players.

“Furthermore, KJC is expected to be impacted by higher labour costs in 2019 as the minimum wage in Malaysia was increased from RM1,000 to RM1,100 monthly while Vietnam’s minimum wage is expected to rise by 5.3 per cent in 2019, especially as its manufacturing businesses and contract packing services are labour-intensive.”

As for chemicals manufacturing companies such as Luxchem Corporation Bhd ( Luxchem) and Samchem Holdings Bhd, AmInvestment Bank noted that the endapplications of their outputs are very diverse (general products) and their diversified, large customer base should mitigate supplier switching concerns and excessive reliance on client’s performance.

Notably, the research firm opined that Luxchem will benefit from its exposure to the glove sector amid stricter hygiene standards globally.