This article first appeared in The Edge Financial Daily, on July 1, 2016.

KUALA LUMPUR: Muda Holdings Bhd, which is anticipating an average 4% annual growth in the packaging industry going forward, is planning to spend RM50 million to expand its paper mill in Kajang, Selangor, a move that should double its corrugated carton box manufacturing capacity over the next four years.

“This year, we are trying to increase the capacity of our cartoon box segment. We will buy a new machine from Germany for RM35 million, and [spend] another RM15 million to extend our existing plant for the purpose,” said its deputy managing director Datuk Lim Chiun Cheong.

“We started the construction three months ago and it is scheduled for completion in November. The machine is set to go for its trial run in December before starting commercial operation,” he added when speaking to the press after the group’s annual general meeting yesterday.

Once the machine is fully commissioned, Lim said, the group’s corrugated carton box manufacturing capability will be raised to 6,000 tonnes per month from 3,000 tonnes per month presently.

In the financial year 2015 (FY15), the paper products manufacturer derived 85% of its revenue from the manufacturing of industrial paper and corrugated carton boxes.

The group estimated that the packaging industry will grow between 4% and 6% this year. According to Lim, the group currently has a market share of about 15% of domestic corrugated carton boxes.

“We still see a big opportunity in the domestic market. [Hence], we will focus on the domestic market and grow our market share,” he said. 

On its newly installed paper glaze machine in its manufacturing plant in Simpang Ampat, Penang (also known as the Tasek plant), Lim said the commercial run of the machine will begin today.

According to Lim, the group currently exports 60% of paper glaze produced at the Tasek plant to overseas markets such as Australia, New Zealand and other countries in Southeast Asia.

In view of the volatility of foreign exchange now, Lim said, the group will hedge their sales on a monthly basis to mitigate the impact.

“We will benefit from a weaker ringgit, as it makes exports more competitive,” he said.

Meanwhile, on the 5.95% hike in gas price announced by Gas Malaysia Bhd on Wednesday, from RM25.53 per million British thermal units (MMBtu) to RM27.05 per MMBtu, Lim said this would likely translate into an additional cost of RM300,000 per month for Muda.

However, he expects to mitigate the price hike impact by switching more to coal, something the group has been able to do to lessen its dependence on gas since it installed three coal boilers at its plants four years ago.

In its first quarter ended March 31, 2016 (1QFY16), net profit surged 112.7% to RM11.08 million from RM5.21 million a year ago, on better demand and a weaker ringgit; revenue improved 12.8% in the period to RM290.5 million.

Muda’s shares closed at RM2.18 yesterday, up 10 sen or 4.81%, for a market value of RM661.96 million.