KUALA LUMPUR: Asia Poly Holdings Bhd’s factory in Klang is currently running at full capacity of producing 600 tonnes of cast acrylic sheets a month. These sheets are used in a wide range of industries such as signage, building application, food packaging industry and medical application.

However, the company’s chief executive officer Teoh Cheng Chuan doesn’t think it is time for Asia Poly to be contented. He realises that the company needs to look beyond the crowded cast acrylic sheet market — that earns a razor-thin profit margin of barely 1% — as this well reflects on the company’s net profit which has often stayed below RM1 million in the past five financial years.

Teoh told The Edge Financial Daily that he is working a way out of the low margin market.

“Our company has achieved the first stage. We are running at full capacity. Now we are entering the next phase which we are going to convert (clientele) from low-end user to high-end user by introducing new innovative products,” said Teoh.

Asia Poly (fundamental: 0.55; valuation: 0.8) has come up with new products to meet the global demand for green building materials that emphasise energy saving thorough its research and development (R&D) efforts.

“We are in the midst of patenting our product and getting certification, and this will be mainly for green building materials. This is the only product that is available in the world through our R&D efforts,” said Teoh.

He expects the company to obtain the patent in six months, should things go well. After it has obtained the patent, Asia Poly will launch it in the fourth quarter this year.

“We are eyeing the global market for this product as governments around the world are emphasising on green building, and if our product qualifies as green building materials, you can imagine the profit,” he said.

Teoh, a chemist by training, is also involved in the R&D process. The company is one of the few in Asia that has a pilot plant for R&D. He meticulously explained the strength of the company’s product bearing the A-Cast brand and technology.

He said the low temperature process at the pre-polymerisation stage could control the consistency of molecule weight of the cast acrylic which gives the company advantage among its competitors that used a high temperature process.

The technology has helped Asia Poly to meet the international standards including the European Union’s EN263, Japan’s Japanese Industrial Standard (JIS), as well as the United States’ American Society for Testing and Materials (ASTM) standard to penetrate the global market.

“We are the major player in the domestic market. We captured 60% of the cast acrylic market,” said Teoh, who joined the company in 2004.

Apart from that, the company plans to add another waste management line to reduce waste and improve its bottom line.

“We are introducing the waste management process in our system in two to three quarters’ time from now. As a factory, you try to produce less waste, when your waste is less, your bottom line is better,” Teoh said.

Asia Poly’s recently-appointed independent and non-executive director Lim Teck Seng, who was also present at the interview, said that the company is also looking into acquisition which would synergise with the core business and at the same time, diversify into other industries.

“We are in negotiations [with the company]. We have presented it to the board. We are looking at downstream or upstream ... for example, we can acquire fabricators,” Lim said.

Lim said all these exercises would be funded internally and through corporate exercises including private placement for bumiputera investors to fulfil the requirement by the Ministry of International Trade and Industry (Miti) and issuing of new shares.

Asia Poly intends to raise about RM5 million to RM6 million from the private placement, and another RM10 million from the issue of new shares.

On the company’s earnings’ performance, Teoh anticipates possible profit growth of 30%, at least, in the current financial period ending Dec 31. The company has changed its financial year-end to end-December, instead of March 31 previously.

The company posted slightly higher net profit of RM687,000 for the financial year ended March 31, 2015 against RM660,000. Revenue grew to RM78.45 million from RM68.6 million. Earnings per share was at 0.78 sen compared with 0.75 sen a year ago.

For the past six years, Asia Poly has been making profit with the exception of FY2011, which recorded a loss of RM612,000 because of the 25% hike in the price of raw materials. For the fourth quarter ended end-March 2015, it had a cash pile of RM10.50 million and short-term borrowings of RM20.58 million.

“Currently, the margin is around 1%. We have high depreciation around 3%, but our earnings before interest, taxes, depreciation and amortisation (Ebitda) for the industry is high. In three years’ time, when the depreciation is completed, our profit margin will grow,” Teoh explains.

Asia Poly has marched to a five-year high of 54.5 sen last week. Year-to-date the stock has jumped 123%, giving it a market capitalisation of RM47 million.

At last Friday’s close at 53.5 sen, the company is trading at a price-earnings ratio of 68 times.

The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Financial Daily, on June 8, 2015.