[The Sun Daily] Diversification paying off for Daibochi

6 August 2012

KUALA LUMPUR (Aug 6, 2012): Daibochi Plastic and Packaging Industry Bhd’s diversification efforts are expected to start paying off in the second half of the year as it moves beyond its traditional food and beverage (F&B) market to serve new customers in non-F&B sectors such as surgical glove, electronics and tobacco.

CIMB Research senior analyst Nigel Foo said Daibochi’s efforts to diversify from the F&B sector over the past few years are finally paying off.

“The non-F&B segment contributed only 11% of group sales in the first half of this year, but this could rise to around 20% by end-2012 as new orders for tobacco and medical gloves kick in. In the second quarter of 2012, Daibochi secured one new major customer in the glove sector. The customer is believed to be one of the country’s major producers of medical gloves,” he said in a report recently.

Daibochi managing director Thomas Lim Soo Koon told SunBiz that the company is focusing on sectors that would utilise its existing infrastructure, “where the investments and diversification that we go into don’t require us to buy specialty equipment”.

“This way, the company does not have to invest heavily in these new markets and thus reduce the risk of diversification,” he said in an interview.

Customers in the F&B market now account for 88% of the company’s revenue. They include multinationals (MNCs) such as Nestle, Kraft and PepsiCo.

Lim also said Daibochi, which sees its growth impetus coming from its cost-effective packaging innovations, is starting to see results from this.

“Downgauging and innovation have been the focus for Daibochi in the last few years and we are beginning to see results from these. It’s about coming up with cheaper alternative to gain more businesses. This is the next area of growth that we’re looking for,” he said.

He said an example of downgauging is to replace the multiple layers in a packaging product with stiffer material, thus reducing its thickness while maintaining or even improving the same properties of that product.

“Our customers claim they are able to save over US$1 million (RM3.11 million) a year in costs, and this is what triggers the demand (for our products),” he added.

Meanwhile, Daibochi is eyeing Australia as a potential huge export market following the acquisition of Aperio Group by Amcor Ltd, the dominant flexible packaging player there. Daibochi currently has a small presence in Australia, which contributes some 15-16% to the company’s overseas revenue.

“With that (Aperio-Amcor) consolidation, we believe there is a good chance for us to have a stronger presence in Australia as the F&B MNCs there seek alternative suppliers,” Lim said.

He added that with the consolidation, prices of flexible packaging are likely to go up, providing an opportunity for Daibochi to grow its business through a competitive pricing edge.

The export market currently contributes 40% of the company’s revenue and the local market the rest.
“We expect our export contribution to surpass the local contribution in two years as we see bigger opportunities in the export market, with clients from developed countries as well as MNCs which provide better margins,” said Lim.

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News Room [The Sun Daily] Diversification paying off for Daibochi