Bucking the downward trend
Some businesses are expecting growth but rising costs and thin margins remain a concern.
DESPITE the prevailing economic uncertainties, some companies are still expecting to see good growth this year thanks to investments made earlier, which has put them on good footing to weather through the slow period.
Two such companies are Penang-based plastic product manufacturers, Prestige Dynamics Sdn Bhd and Danapac Industries (M) Sdn Bhd. Both companies have been investing between US$1mil and US$2mil annually on new technologies over the past two years. This has enabled them to secure orders for new products from existing customers.
Prestige Dynamics is targeting to achieve a 20% revenue growth this year from 2016’s achievement of RM50mil.
Prestige Dynamics manufactures casings for sensors, electronic consumer goods and sunroofs for automobiles.
“We have not lost customers because the manufacturing technologies used are still relevant for their new products.
“About US$2mil is pumped in yearly to upgrade the manufacturing process,” says Prestige Dynamics chairman Tan Wee Ming.
The company installed automated production lines in 2015, which has since increased its productivity and slashed production cost by about 20%, adds Tan.
Danapac is also looking at similar growth this year, aiming to generate about RM35mil in 2017 from RM29mil in 2016 from supplying semi-finished thermo-forming sheets to make trays for packaging food and beverage, electronic and medical devices.
Danapac director Jansen Lim says the company has invested US$2mil over the past two years for new production equipment and machinery.
“The investment has helped us save about 15% in production cost.
“This year we will spend US$1.5mil for new equipment at the Bukit Minyak plant.
“Such spending is necessary otherwise we would lose the customers to our competitors,” Lim says.
Growth segments
Prestige Dynamics’ automotive sunroof business is expected to increase to RM12mil in 2017 from RM8mil in 2016, says Tan.
The growth is in line with Technavio’s projection that the automotive sunroof industry would experience an 11% compounded annual growth rate (CAGR) for the 2017-2021 period.
According to Technavio, the market size is projected to grow to 49.46 million units in 2021 from 29.06 million units in 2016.
Additionally, says Tan, the sensor business is registering strong growth as the company is now producing five different types of sensors for the automotive industry in Europe.
“The sensor business is expected to grow to about RM15mil this year from approximately RM8mil in 2016.
“We are also doubling the revenue from the medical device segment to RM8mil in 2017 from RM6mil in 2016.
“We are getting increased orders for plastic-based respiratory aids and blood transfusion instruments from US and European customers,” Tan says.
Prestige Dynamics also makes plastic-based housing for European manufacturers of power tools.
Tan says in 2017, the company will spend RM4mil to add two more production lines, making it a total of four lines, to produce casings for sensors.
“Prestige Dynamics’ second production facility in Seberang Prai, which is now under planning, should start construction by mid2017,” adds Tan.
The RM15mil plant will have a build-up area of 30,000sq ft, which will be used to produce more sensor casings and medical devices.
As for Danapac, the contribution of its medical device packaging business to its revenue is projected to grow to 15% this year compared to 10% in 2016.
“According to Malaysia External Trade Development Corp, the Asean medical device market will double to RM8bil in 2017 from RM4bil in 2016.
“Under the 11th Malaysia Plan for national development (20162020), the medical device industry has been identified as key to rapid growth alongside the aerospace, chemical, electronics and machinery sectors,” notes Lim.
Lim expects to secure RM15mil of its projected RM35mil revenue by mid-2017.
“The demand for packaging materials from the food and beverage and electronic sectors will also drive the company’s growth,” he adds.
Challenges persist
While sales is expected to be good, there is growing concerns on rising costs and thining margins.
According to Tan, Prestige Dynamics’ gross margin has been slashed by 30%-50% due to intense competition from China, Indonesia and Thailand. This is on top of the high cost of imported raw materials due to a weakened ringgit.
“We have to import raw materials such as nylon, polycarbonate plastics and engineering plastics from Europe and the US to manufacture.
“However, we are unable to raise prices because of the intense competition in the market,” Tan says.
Lim says Danapac’s gross margin has been cut by about 20%.
“The foreign worker levy, to be implemented soon, will also impact the company’s earnings.
“The minimum wage, which was increased to RM1,000 from RM900 in 2016, is already eating into our margins.
“The recent ruling to convert 75% of the foreign currency to ringgit is expected to erode margins by 1%,” Lim shares.
Lim adds that MIDA needs to speed up the applications from SMEs for grants to automate their production processes.
“We need to automate to compete effectively in the international arena,” Lim says.