DS Sigma optimistic of entering new markets
05 Jan 2023
Packaging products provider DS Sigma Holdings Bhd is optimistic about its plans to offer its packaging solutions to the solar photovoltaic (PV) and medical devices industries.
DS Sigma managing director Lucille Teoh Soo Lien said the decision to go into these markets was a thoroughly thought-out process. “We identified these two segments as markets we will be able to offer our innovative packaging solutions such as packaging design, space optimisation and container loading efficiency.
“Currently, we are predominantly serving customers in the electrical and electronics space which includes televisions. The packaging solutions, which we are offering for the television segment, are applicable to solar PV panels as well.
“As for medical devices, we chose this industry as bulky items need to be transported safely without damaging the products,” she told StarBiz.
The group, en route to a ACE Market listing on Jan 6, 2023, produces corrugated paper packaging products including cartons, protective packaging and paper pallets. It also supplies non-paper-based protective packaging products such as plastic, foam and rubber products.
To value-add, DS Sigma also provides front-end services such as design support, packaging optimisation and assembly and packing services.
The group’s factories, warehouses and business operations are located in Klang and Puchong, Selangor and Nilai, Negri Sembilan.
Teoh said capacity constraint is a challenge for DS Sigma as the packaging for bulky items takes up space in the group’s warehouse, which may hinder its production capabilities.
“Setting up a new factory in Klang followed by our expansion into Penang will mitigate this issue,” she said.
DS Sigma plans to expand operations to Penang by renting a 25,000 sq ft warehouse in Batu Kawan and setting up a new factory in Klang. The group plans to buy and install automated and robotic packing machines for existing production lines in its current Klang and Nilai factories.
“Our flexographic printing machines now have a production capacity of 26 million pieces and almost nine million pieces for our fully automated die-cut machines,” said Teoh, adding the group aims to further improve its packaging solutions offerings through the setting up of a design and innovation centre.
Teoh pointed out the Penang unit will cater to the many electrical and electronic players there. “As we mainly serve clients in this segment, moving into Penang is a natural progression to increase our market share through the expansion of our clientele base.
“There are a lot of other industries such as solar and medical devices which we can tap into as well. Right now, we are mainly serving customers in Selangor, Negri Sembilan and Johor,” she explained.
Other plans in the pipeline include introducing a new type of paper pallet using honeycomb board, and six-colour printing on its corrugated cartons.
Teoh said the recent labour shortage in the manufacturing industry has not impacted the group significantly, as the group has been gradually reducing its reliance on labour through automation.
This is reflected in the group’s labour cost which has been on a downtrend since its financial year ended June 30, 2019 (FY19) and has since reduced from RM13.44mil to RM8.7mil in FY22.
On the matter of higher raw material costs, Teoh said DS Sigma is able to pass down changes in raw material prices to its customers.
“Our customers are fully aware of any raw material movement, and throughout the years of doing business with them, they practise fair business practices – and we will review any significant raw material cost movement, be it up or down, it will be reflected in our product prices accordingly,” said Teoh.
DS Sigma is not exposed to foreign exchange risks as the volatility of the ringgit is reflected in product prices, she said.
The global logistics bottleneck issues have benefited DS Sigma, which saw an increase in demand for its design and innovation services, to optimise customers’ container loading efficiency and help them reduce logistics costs.
As at end-FY22, the group’s total borrowings were RM10.8mil with a cash and bank balance of RM19.2mil. DS Sigma has allocated RM6mil from the listing proceeds to repay bank borrowings in order to pare down debt, and further improve its net cash position.
“Changes caused by the fluctuating interest rate, be it the interest income or expense, would be insignificant given the magnitude of such changes relative to our larger earnings base,” said Teoh.
DS Sigma, Teoh pointed out, started as a product-centric supplier and evolved into a supply chain packaging solutionist.
DS Sigma is expected to raise RM50.15mil from the initial public offering via the issuance of 91.18 million new ordinary shares at 55 sen per share.
This translates to a price-earnings multiple of 12.56 times, based on the earnings per share of 4.38 sen and net profit of RM21mil for FY22, and enlarged issued share capital of 480 million shares upon listing.
DS Sigma does not have a dividend policy.
Some 34.3% of proceeds raised will go to expand the group’s operational facilities while another 31.91% to buy new machinery and equipment. About 2.27% of the money will be used to set up a packaging design and innovation centre, while 11.96% will be for the repayment of bank borrowings. Another 10.79% will be for working capital.
DS Sigma has a 2.5% market share in the corrugated carton industry. For its first quarter ended Sept 30, 2022, DS Sigma posted earnings of RM4.71mil on RM25.39mil revenue. Earnings per share was 3.38 sen.
In a Bursa Malaysia filing, the group noted close to 80% of the quarter’s revenue was from its manufacturing segment.
Source: The Star