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This article first appeared in The Edge Malaysia Weekly on October 14, 2019 - October 20, 2019

TONER manufacturer Jadi Imaging Holdings Bhd has been under the radar of investors for years. This is not surprising, considering its weak financial performance in recent years.

With the advent of technology, the sun appears to be setting on the printing industry, further diminishing Jadi’s appeal.

While Jadi executive chairman and CEO Liew Kim Siong acknowledges that digitisation is replacing hardcopy printing, especially in the big-scale publishing industry, he insists that office printing is here to stay.

“Like it or not, there has been a very negative perception of the printing industry. To me, this is a wrong perception. Personally, I don’t think this is a sunset industry,” he tells The Edge in an interview.

Today, the likes of Canon, Xerox and Minolta are making more multi-function printers rather than just standalone analogue photocopy machines. These digital printers provide various functions such as photocopying, faxing, scanning and emailing.

“We have seen an evolution of demand. Jadi is making dry-powdered toner for laser printers and multi-function printers, which are used in the office environment. This market segment is not going away anytime soon. Even in the UK today, companies still need to keep hard copies of their financial statements for the last seven years,” says Kim Siong.

Nevertheless, as the industry evolves, Jadi realises the need to rope in a financially strong strategic partner from China to help revive its business.

On Aug 13, Jadi signed a subscription agreement with Static Control Holdings Ltd (SCC) — a wholly-owned subsidiary of Zhuhai-based Ninestar Corp — to take up a substantial stake of 9.09% in the company.

Shenzhen-listed Ninestar, which has a market capitalisation of 30.9 billion yuan, is a global printing giant that owns Lexmark, a globally-renowned printer brand, as well as Pantum, a top printer brand in China.

Jadi and SCC signed a supply agreement that will see the latter buying a committed quantity of chemical toners, formulated and manufactured by Jadi, for a period of three years from April 2020, as well as supply opportunities for conventional toners for Ninestar and its subsidiaries, including SCC.

“With them in, our chemical toner business will be very much on auto-pilot mode. In fact, we don’t even have sufficient capacity to meet all the volume they want. We are a different animal from what we used to be. Unfortunately, the market does not see our potential yet,” says Kim Siong.

Founded in 1993, Jadi is mainly involved in the development, formulation and manufacturing of toners for laser printers, photocopiers, facsimile machines and multi-function office equipment.

Its headquarters is in Hicom-Glenmarie Industrial Park, Shah Alam, where it also has its main manufacturing and research and development facilities. It operates another factory in Jalan Kapar, Klang.


Scaling up capacity

Jadi had raised RM12.2 million after placing out 94.17 million shares to Ninestar at 13 sen per share, a whopping premium of 117% to its closing price of six sen on Aug 13.

Year to date, shares of Jadi, which is listed on the Main Market, have gained two sen or 57% to close at 5.5 sen last Wednesday, giving it a market capitalisation of RM57 million.

“Despite the good news that Jadi is teaming up with Ninestar, which will provide us earnings visibility for the next three years, we are not seeing any interest in our shares, and that is disappointing,” says a visibly upset Kim Siong.

“The fact that the Chinese firm is buying our shares at 13 sen speaks a lot about how undervalued they are. Perhaps we have not done enough on IR (investor relations), and we will try to improve that when the earnings kick in,” he adds.

Based on the committed buying volume from Ninestar, Jadi will supply SCC a total of 250mt of chemical toners in the first year, starting in April next year, followed by 325mt and 420mt in the following years.

According to Jadi executive director and group sales and marketing manager Liew Kit, the company is expanding its chemical toner annual capacity from 100mt currently to 800mt by early next year.

“We are investing about RM16 million for three additional production lines in our Klang factory. We should be able to commence production by April, and start to fulfil our volume to them,” says Kit, who is Kim Siong’s son.

He adds that Ninestar’s consumption of conventional toners is about 8,000mt yearly while Jadi’s conventional toner total capacity is 6,000mt per year.

This puts Jadi in a plum position as the preferred supplier of conventional and chemical toners, with access to a ready market as it is the first toner manufacturer that Ninestar has taken an equity stake in.

“Frankly, this is only the first stage. If our partnership works well, we do not discount the possibility that Ninestar may want to take up a bigger stake in Jadi,” says Kit.

After reporting a net loss of RM17.2 million in its financial year ended March 31, 2017 (FY2017) and RM10.7 million in FY2018, Jadi returned to the black with a net profit of about RM459,000 in FY2019.

Its competitors are based in Japan, China and Taiwan. In terms of capacity, only one company in China is equivalent to Jadi but the Chinese firm does not have chemical toner technology.

“Ninety-five per cent of our sales in terms of volume and value come from exports, with China contributing about 65%. We expect China’s contribution to increase to 85% to 90% within the next three years,” says Kit.

Despite the recent positive developments, Kim Siong points out that Jadi may not want to maintain its listing status if it fails to attract investors’ attention in the near future.

“To me, if we can deliver the results in the coming years, I believe our shares will be valued properly at about 18 to 20 times. If they are not, that means the market does not appreciate our stock, and it may not make sense for us to remain listed anymore. Don’t get me wrong, I am not saying that we plan to privatise the company. But we have to remain open to all options,” he says.

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