Chemical Company of Malaysia Bhd (CCMB) is investing almost RM90 million to boost capacity following the demerger of its listed pharmaceutical entity to fuel the growth of its chemicals and polymers businesses, both of which enjoy pent-up demand.
Newly-appointed Group Managing Director Nik Fazila Nik Mohamed Shihabuddin said the new capital expenditure (capex) following the demerger was reflective of the group’s capacity to fully subscribe available capital to fuel its growth ambitions of achieving sustainable double-digit growth and profits.
Currently, CCMB’s chemicals and polymers businesses enjoy robust growth with pre-tax margins of over 10 % from the current revenue of RM350 million.
Nik Fazila said there was a sizeable gap between demand and supply of chlor-alkali products.
In the polymers business, the epicycle in the gloves industry, CCMB’s leading edge polymer solutions provided the group with a strong and compelling platform to invest and seize the advantages of fulfilling its customers’ needs ahead of the competition.
“Our chemicals and polymers businesses have direct exposure to the rubber glove manufacturing process. Both segments are set to grow in tandem with the capacity expansion of the rubber gloves players,” said Nik Fazila.
Last year, CCMB announced two major corporate proposals which called for the demerger of CCM Duopharma Biotech Bhd (CCMD) from the group via a distribution of its entire equity interest in CCMD to its shareholders.
The proposals involved a de-gearing exercise relating to the proposed sale of its three parcels of land in Shah Alam, a proposed private placement of up to 10 % of the issued share capital in CCM Bhd and the identification of other non-core assets to be divested.
The initiatives were a continuation of the company’s strategic review, which commenced in 2015, to house all of its pharmaceuticals businesses under the CCMD umbrella, to exit from non-performing business segments and strengthen its balance sheet.
This gave the group ample agility to pursue its capital expansion and a sustainable growth strategy for the future.
The net results of the demerger would result in a lightened balance sheet for CCMB and give shareholders direct ownership in both CCMB and CCMD, and participate directly in the growth of the two separate entities.
It is part of CCMB’s continuous effort to strive towards sustainability and achieve optimum development in moving forward and growing within a competitive business environment.
Headlining CCMB’s growth plans include a RM68.5 million investment to reactivate its chlor-alkali plant in PasirGudang, Johor, to deliver additional production capacity which will allow its chemical business to capture the available market opportunity currently supplied by importers.
Nik Fazila said the plant was expected to be completed in the second quarter of 2019 and would install an extra 20,000 tonnes per annum in capacity at a lower capex cost vis-à-vis starting a green field site as most of the required infrastructure costs for the plant were already in place.
“This measure will significantly increase our chemicals business’ revenue by 50 % and further strengthen market share in the chlor-alkali segment from 2019 onwards.
“Besides, CCMB would also set up a new calcium nitrate facility in Shah Alam to capture additional market share in the calcium nitrate segment.
“This facility is expected to be commissioned in the third quarter of 2018,” she added.
The two largest contributors by revenue to CCMB’s chemicals’ business are caustic soda, used in pulp paper, textile, oleochemicals, and soap/detergent industries, as well as, as effluent controls; and chlorine, highly used in water treatment and the gloves industry (among many others, chlorine is used in the chlorination process to smoothen the gloves surface).
As the local glove industry looks forward to doubling its total capacity in the near future, CCMB’s polymers business is staying ahead of the game by investing RM20.8 million to acquire a parcel of land together with a factory in Bangi that would see the relocation of its current warehouse and head office to the new site.
“This move will enable the debottlenecking of the existing plant’s capacity by an additional 10 % from the current capacity of 18,000 tonnes per annum by year-end and increase the polymers business’ revenue by the same,” said Nik Fazila.
CCMB’s polymers business focuses on the production of polymer coating for the manufacturing of powder-free gloves and anti-tacking coagulant used in cleaning ceramic formers.
“We mainly serve the powder-free surgical examination gloves market which requires polymer coatings. This market has a compound annual growth rate of 8.0-11 %.
“Hence, our debottlenecking effort will help us seize the opportunity to grow our market share,” she added.
CCMB focuses on highly niche and customised products to serve its customers and the group is the leading supplier of polymer coating-related products to premium players in the glove manufacturing sector.
“Each of our customers can expect to receive custom-made products that meet their needs and requirements.
“Moving forward, we aim to diversify our list of customers by looking into actively growing our equity in the lower end market which covers the cleaners market,” she added.
CCMB would also continue to divest non-core assets in 2018 to raise funds to reduce the level of borrowings beginning with the disposal of its Shah Alam property for RM190 million which would be used to repay debts.
“Together with other identified non-core assets planned for divestment, all of which will be used to reduce borrowings, the debt reduction exercise will lead to interest savings of RM12 million-RM14 million, annually,” she said.
As part of its commitment to becoming a world-class player in the polymers market, CCMB acknowledged the importance of continuous investment in research and development (R&D) in the next five years.
“We currently invest RM1 million per year in R&D and intend to double our investment in this area in 2018 as we recognise how significant spending in product innovation will greatly help us increase our yields and improve our long-term sustainability,” said Nik Fazila.
To achieve its goal, CCMB is collaborating with private and public universities in Malaysia, including Monash University, Universiti Putra Malaysia and Universiti Malaysia Terengganu which will also create opportunities for the universities to commercialise their research.
CCMB is also exploring opportunities to rapidly enhance equity of its businesses and does not discount the possibility of collaborations and acquisitions.
“Rather than a greenfield approach, collaboration and acquisition enable us to quickly scale up our participation in our businesses,” she added.
The initiatives undertaken by CCMB would see the building value of CCM’s chemicals and polymers businesses in the long run with greater focus and support for their growth.
CCMB is confident that the efforts would allow the group to fully utilise its resources more effectively and efficiently, and promote strong growth for its chemicals and polymers businesses.