In a move to expand its market in Indonesia, Resintech Bhd has set up a plant in Batam with an initial investment of S$2.5 million (RM6 million).

The building of the plant is a natural step for the company, says its managing director Datuk Dr Teh Kim Poo, after the Indonesia government implemented a ruling that required products used in infrastructure projects to have 30% local content.

“Instead of exiting the market, we saw it as an opportunity for us to enter and set up a plant to expand our market in Indonesia. It would also support our exports in the region,” he tells The Edge.

Resintech, a manufacturer of various PVC and polyethylene products, was listed on Bursa Malaysia’s Second Board in 2006. It moved to the Main Market early this year.

It has five factories located in Klang, Kota Kinabalu and Kuching that manufacture and supply products such as PVC pipes, fittings, rain gutters and septic tanks. Its main customers include those in the water treatment, water supply and gas industries.

The company will eventually invest a total of RM6 million in the Batam factory, with an additional S$300,000 in start-up costs to shift and install its machinery.

“The investment is being kept to a minimum as we are not buying any new machines, but simply transferring out three unused lines from Klang to Batam. The three lines are expected to produce 750 tonnes of PVC per month,” he says.

Indonesia currently contributes about 10% of Resintech’s total revenue, and this is expected to increase to 15% next year with the new plant. “We hope to increase it to 25% in two years,” adds Teh. The factory will begin production next month.

Apart from serving the Indonesian market, the Batam factory will also support rising orders for PVC products in the region, says Teh. Malaysian sales contribute up to 80% of the company’s revenue.

“There is brisk demand for PVC products at the moment, given the various infrastructure projects [being undertaken around the region]. As such, the new factory will increase our capacity, not only for the Indonesian market but also the region,” he says.

According to Teh, there has been an increase of infrastructure work in countries like Sri Lanka and Cambodia, which have received investments from foreign governments. 

“Infrastructure work will increase in the coming years. For example, we already have an agent in Cambodia, so that when the government decides to install water pipes in rural areas, we will already be there,” explains Teh.

For FY2010 ended Feb 28, Resintech saw its net profit rise 66% to RM3.03 million from a year earlier, on the back of RM78.6 million in revenue. It had paid out an interim dividend of 1.2 sen per share, and recently proposed a bonus issue of two new shares for every five existing shares. 

For 1QFY2011 ended May 31, it saw its net profit jump 112% to RM1.42 million on the back of RM24.5 million in revenue.

Its share price has risen some 16.7% YTD to close at 66.5 sen last Friday.

Teh says the company is expected to do well this year as demand for PVC products has been brisk this year.

“For the next six months, we have an order book of approximately RM36.4 million. This is from various projects in Sri Lanka, Indonesia and Malaysia,” says Teh.

Teh says the Batam factory is completely internally funded.

As at May 31, its cash and bank balances stood at RM794,000, while its bank borrowings amounted to RM32.53 million. With its shareholders’ funds at RM78.32 million, it has a comfortable net gearing of 0.4 times.

“We are in the midst of gearing down. Please note that in a year, we successfully reduced our borrowings by 28%,” he adds.

Interestingly, Resintech also incorporated a subsidiary in China early this year, with a registered capital of US$10 million (RM30.8 million).

“We are planning to enter the China market, but there are certain difficulties that we are facing at the moment. After we have set up the Indonesia plant, we should move on with our expansion in China next year,” says Teh.

In addition to the new Batam plant, Resintech is also branching out into fast food franchising. It recently entered into a 10-year renewable master franchise agreement with Sarpino’s World of Canada to establish and operate Sarpino’s Pizzeria in Cambodia. Some might wonder if there is synergy between PVC and pizzas. 

Teh says that Resintech is not moving away from its core business, but is only looking at fast food as additional contributor to its bottom line. Resintech is set to open its first two outlets in Phnom Penh by year-end.

“We are investing a total of US$150,000 for our first two outlets, which also includes the master franchise fee. We expect returns of US$15,000 a month from the two outlets,” says Teh.

He adds that Resintech hopes to open another three outlets by December 2011.

“Our outlets are not located in the city centre but in middle-class housing areas where universities and international schools are located. We expect them to do well as we are adopting a delivery system and we are hoping to capture the student population in the areas.

“Apart from that, entering Cambodia is a sensible move for us as it is an emerging economy, and we also have a distributor in the country,” he says.  “And if we do really well, who knows, we might look at other franchise business in the future,” Teh adds. 

Interestingly, Resintech also has an associate stake in a direct-selling company, Asia Herbal Biotech Sdn Bhd after acquiring a 27% stake for RM540,000 two months ago.

Incorporated in August 2009, Asia Herbal is a direct-selling company that sells health food and drinks, herbal products, and organic food products.
Although diversification is seen by some as a risky move, Teh assures that it will not steer Resintech away from its core business, and the group sees value in both pizza and herbal products.

“We invested in Asia Herbal because we felt we could see good returns in the business. We also knew that the company was in good hands as the management were experienced people in the direct-selling business.

“In fact, we [already] have some returns on our capital investment in the company,” says Teh, adding that it expects Asia Herbal to contribute 5% to 10% to its revenue next year.

This article appeared in Corporate, The Edge Malaysia, Issue 828, Oct 18-24, 2010