15 November 2016

By P. Aruna

In agreement: (From left) Daibochi executive director Low Jin Wei, Lim, chairman James P. Edwin Louis Pushparatnam, MSP executive director Kyaw Win Tun and business development manager Ye Wint Oo at the MoA signing ceremony to set up a joint venture in Myanmar
In agreement: (From left) Daibochi executive director Low Jin Wei, Lim, chairman James P. Edwin Louis Pushparatnam, MSP executive director Kyaw Win Tun and business development manager Ye Wint Oo at the MoA signing ceremony to set up a joint venture in Myanmar

KUALA LUMPUR: Daibochi Plastic and Packaging Industry Bhd will invest US$6.8mil (RM29mil) for a controlling stake in a new joint venture company to tap into the flourishing consumer packaging market in Myanmar.

The flexible packaging manufacturer entered into a Memorandum of Agreement (MoA) with Myanmar Smart Pack Industrial Company Ltd (MSP) to set up its first overseas manufacturing facility in Myanmar, under the JV company, Daibochi Packaging (Myanmar) Co Ltd (DPM).

The JV company, in which Daibochi will have a 60% stake, will take over MSP’s existing business, equipment and premises in Yangon, Myanmar.

MSP will hold the remaining 40% stake after injecting its entire assets into DPM.

Daibochi managing director Thomas Lim said the group will also invest an additional capital expenditure of US$5.5mil (RM23.6mil) over the next three years to enhance the production capacity, quality and efficiency of the manufacturing facility there.

He said the investments would be funded via a combination of internally-generated funds and bank borrowings.

Funding for the additional capital expenditure, he said, would largely be from the cashflow of the JV company itself.

“The profit margin in Myanmar is very good, partly because of their low cost base.

“We are expecting a very strong cashflow from operations there.

“We are not expecting any fresh capital injection from the shareholders of either company,” he told reporters after the signing of the MoA.

As it was a brownfield investment, he said the JV was expected to contribute positively to the topline and bottomline of the group within the first year of operations.

DPM is expected to post over US$8mil in revenue during its first year of operations.

While Daibochi is mainly involved in flexible packaging for the food and beverage and FMCG sectors, MSP’s current business is primarily in the home personal care products segment and supplies to the local market in Myanmar.

Lim said Daibochi will bring in the necessary investment to expand the existing product range, particularly to serve the food and beverage industry.

“While our main objective is to tap into the fast-growing Myanmar market, due to the low cost base, we see opportunity to export out of Myanmar,” he said.

However, he said they expected the export portion of DPM to remain below 30% of its business for the first three years.