Tien Wah to diversify

Mixed commercial project proposed for factory site

PETALING JAYA: It is never a good idea to put too many eggs in one basket.

For printing firm Tien Wah Press Holdings Bhd, its diversification strategy involves the proposed redevelopment plan of its factory site along Jalan Semangat in Petaling Jaya into a mixed-use commercial project.

But after the initial euphoria that saw its share price doubling to an all-time high of RM3.26 on Jan 13, investor sentiment on the stock has turned cautious.

Just down the road from its headquarters in Petaling Jaya, Tien Wah’s single biggest client, the British American Tobacco (BAT) group, in March announced that it was winding down its Malaysian manufacturing operations.

BAT would no longer produce cigarettes in the country but would import them from regional manufacturing centres in Singapore, Indonesia and South Korea.

Tien Wah’s chief executive officer Lee Chee Whye, in the company’s latest annual report, expects “strong competition as we negotiate the extension of supply for three additional years”.

The company did not respond to email queries.

As it is, as much as 80% of Tien Wah’s revenue comes from BAT. The company supplies tipping paper, the brown-coloured material that wraps the filter on a cigarette, to BAT’s manufacturing factories in Malaysia, Singapore, Vietnam and Australasia.

That contract, which generated revenue of RM289mil for the company in 2015, will expire at the end of the year.

Chairman Yen Wen Hwa, in the company’s latest annual report, expects “strong competition” for the tender.

In 2008, Tien Wah, together with its substantial shareholder and ultimate holding company New Toyo International Holdings Ltd, had successfully bid for a seven-year exclusive supply agreement with a right to extend for an additional three years to supply BAT’s printed carton requirements in Australasia, Vietnam, Singapore and Malaysia.

This agreement was subsequently extended on Nov 13, 2014 for an additional one year from the existing period of seven years ended Oct 31, 2015 to Oct 31, 2016, and the continuing right to extend for an additional three years.

The group said in its 2015 annual report that it aimed to expand its footprint overseas and increase its market share among its existing clients.

“While our key focus would be on securing the extension of the supply agreement with our key customer, we would also continue to execute our strategies of increasing our market share among other key customers and expanding our footprint. These would be the other critical success factors for the group’s future growth,” said Lee.

In February, Tien Wah had proposed to undertake a renounceable rights issue of 48.25 million new shares at an issue price of RM1 per rights share on the basis of one for every two existing shares.

The rationale for the cash call was to expand production facilities in Indonesia and the Middle East, and repayment of bank borrowings.

Tien Wah has also incorporated a new unit, Alliance Print Technologies FZE, in Dubai in line with its long-term strategic plan and to gain a footprint in the Middle-East market.

The proposed rights issue is expected to be completed by the third quarter of 2016.