This article first appeared in The Edge Malaysia Weekly on January 1, 2018 - January 7, 2018

JAPANESE pulp and paper giant Oji Holdings Corp aims to increase its market share in the Malaysian corrugated carton industry to 40% from 30% currently.

Senior executive officer Yasuo Nakanishi tells The Edge that his team is formulating plans to achieve this target by way of organic and inorganic growth.

Nakanishi is also the president and CEO of Oji’s Southeast Asian and Indian holding companies, namely Oji Asia Packaging Sdn Bhd and Oji Asia Management Sdn Bhd.

“There is a possibility of more acquisitions because our long-term target is to capture a 40% market share in this country. That was what we were told [at] a [recent] budget meeting in Japan to talk about the strategy in Malaysia, and Oji is financially prepared to support our expansion here,” he says.

“Nothing has been finalised so far. We have to have the right target for acquisition. For now, in terms of corrugated carton, we have seven plants running in Malaysia, and three of them are expanding.”

The expansions will add another 90,000 tonnes of annual capacity to the group by 2019.

Nakanishi says while there is no official data on the size of the Malaysian market, the group estimates that the total volume of the corrugated carton market is about 1.25 million tonnes per annum, and that it is growing at an average annual rate of 4%.

“Basically, Oji’s strategy is to build a global business because of the sluggish market in Japan. For the packaging side (corrugated carbon), there is good growth in Japan but it is very limited — maybe 0.5% to 1%. The [containerboard] paper market, on the other hand, is saturated. So, our strategy is to spend our resources in the global business arena,” he explains.

Oji’s paper business in Malaysia is divided into upstream (containerboard paper) and downstream (corrugated carton packaging).

The bulk of its upstream businesses is parked under its 75%-owned subsidiary GS Paperboard & Packaging Sdn Bhd (GSPP), which Oji bought from CVC Asia Pacific Ltd — a private equity firm — in April 2010. But the purchase consideration was not disclosed publicly.

CVC acquired GSPP from Genting Bhd’s 97.7%-owned subsidiary, Genting Sanyen (M) Sdn Bhd, for RM745 million cash in 2007.

The rest of the stake (25%) in GSPP is owned by Japanese trading giant Marubeni Corp.

For the financial year ended Dec 31, 2016 (FY2016), GSPP’s net profit rose 7.58% year on year to RM91.84 million while revenue grew 10.19% to RM828.6 million.

For FY2018, the group expects to see net profit and revenue of more than RM100 million and over RM1 billion respectively, GSPP chief financial officer Fong Weng Meng says.

For the Oji group of companies in Malaysia, total revenue is estimated at RM1.8 billion for FY2018, of which RM1 billion or about 55% is attributable to the corrugated carton division, while the remaining RM800 million or 45% is from the containerboard paper business, Fong adds.

Nakanishi, who is also chairman of GSPP, says demand for both corrugated carton and containerboard paper is resilient today, not only in Malaysia but also the entire Southeast Asian region.

GSPP president Sia Boon Soon says most multinational corporations in Malaysia, such as Sony, Panasonic and Nestlé, source corrugated carton from GSPP.

“Our competitive edge comes from our product quality. This contributes to our pricing, and our product costing contributes to our margin, so we believe that we are very competitive in Malaysia in terms of [containerboard] paper, and the margin pressure for this segment has remained manageable so far.

“For corrugated carton, it is very competitive, but our advantage is our high graphic printing capability. Our competitors can’t do this because they don’t have this kind of technology,” says Sia.

He adds that Malaysia is still a net importer of containerboard paper — amounting to over 300,000 tonnes per year.

“We have two machines today at Kuala Langat — Paper Machine 1 (PM1) and PM2. Their combined capacity is about 300,000 tonnes per year. We will be investing RM1.26 billion in PM3, which will have a capacity of 416,000 tonnes per year,” Sia explains.

The investment is in the final stage of approval by Oji’s board of directors.

“Some initial groundwork, such as water abstraction rights from the Selangor Water Management Board, has been approved, additional land has been purchased and an environmental impact assessment study has been submitted to the Department of Environment for approval,” says Sia.

As an integrated factory, one of GSPP’s advantages is that it can assure its customers of its paper quality, he adds.

“The majority of the paper supply for our corrugated carton comes from our own paper mill.”

In Asean, apart from Malaysia, Oji has a presence in Myanmar, Thailand, Cambodia and Vietnam.

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