Dear valued shareholders,
I am honoured to present to you the Annual Report 2018/2019 of Daibochi Berhad (“Daibochi” or the “Group”), which provides a review of the Group’s operating environment and performance for the 19-month financial period from 1 January 2018 to 31 July 2019.
The extended timeline of this report results from a change in the Group’s financial year end from 31 December 2018 to 31 July 2019, in order to coincide with the reporting period of our parent company, Scientex Berhad (“Scientex”).
Economic review for the 19-month period ended 31 July 2019
Corporations globally faced multiple operating headwinds in 2018, including volatility in financial markets, trade policy uncertainties, and slowdown in growth by the world’s second largest economy – China. Despite the challenges, the global economy maintained gross domestic product (“GDP”) growth of 3.7% in 2018 as reported by the International Monetary Fund (“IMF”), the same pace as in 2017, driven by stronger performance of the United States and various energy-exporting countries.
The IMF, in its World Economic Outlook Update in July 2019, forecasted subdued GDP growth of 3.2% for 2019, warranted by continued uncertainties in global conditions. The tepid outlook comes on the back of global supply chain disruptions arising from the trade dispute between the United States and China, uncertainties surrounding Brexit, and volatile energy prices due to geopolitical tensions.
In Malaysia, the economy registered moderated, albeit encouraging, GDP growth of 4.7% in 2018 according to Bank Negara Malaysia (2017: 5.9%), supported mainly by resilient household spending in addition to favourable growth in wages and employment. Meanwhile, GDP growth for Malaysia remained healthy at 4.7% in the first half of 2019, underpinned chiefly by the services, manufacturing and agriculture sectors.
The period under review saw Daibochi marks several momentous achievements in our corporate history, paving the way for continued growth and enhanced sustainability.
- Becoming a 61.9% owned subsidiary of Scientex
Daibochi recorded a new milestone as we emerged as a 61.9%-owned subsidiary of Scientex.
The development originated from a share exchange between a group of Daibochi shareholders and Scientex on 19 February 2019 based on 1 new ordinary Scientex share for every 5.535 Daibochi shares, amounting to a 42.4% stake in Daibochi.
This was followed by a Mandatory General Take-over Offer by Scientex for all remaining Daibochi shares at an offer price of RM1.59 per share, and RM0.01 for every outstanding warrant surrendered. The MGO was completed on 5 April 2019 with Scientex holding a 61.9% stake in Daibochi.
The acquisition provides synergistic benefits as it brings together the operational scale and technical expertise of two leading players in the flexible plastic packaging (“FPP”) space. We also look forward to collaborating in the development of industry-leading sustainable packaging solutions, thereby placing the Group in an advantageous position to support the environmental safeguard strategies of our clients’ brands.
- Acquisition of the entire stake of Mega Printing & Packaging Sdn Bhd (“MPP”)
Daibochi had, on 5 August 2019, completed the acquisition of the entire equity of MPP of 4.5 million ordinary shares for a total cash consideration of RM125.0 million.
Similar to Daibochi, MPP manufactures downstream FPP comprising roll-form and pre-made pouches with laminated structures mainly for food and beverage (“F&B”) applications, including confectionery, snacks, noodles and powdered beverages.
Additionally, by tapping into MPP’s predominantly local clientele, Daibochi is able to further expand our reach in the domestic FPP market, thus setting a new base in our market share for F&B packaging in the region.
Corporate Governance and Sustainability
Daibochi is fully committed in ensuring that best practices are maintained consistently, to ensure compliance with the highest standards of corporate governance.
Furthermore, we constantly work towards enhancing our business practices towards achieving greater sustainability and strive to continuously bring a positive and lasting impact to our stakeholders and the communities around us.
In recognition of our efforts towards upholding sound principles of corporate governance, Daibochi received the Best in Transparency award in the RM500-RM950 Million category at the Best Under Billion Awards 2018 by Focus Malaysia. Additionally, we won the Excellence Award for Overall Corporate Governance and Performance (Market Cap Between RM300 Million to RM 1 Billion) at the MSWG-ASEAN Corporate Governance Awards 2018 – an accolade received since 2016.
Further disclosures on Daibochi’s sustainability measures are outlined in the Sustainability Statement.
The IMF, in its World Economic Outlook Update in July 2019, estimates that the global economy would register GDP growth of 3.5% in 2020, improving from 3.2% projected for 2019.
While prospects of major economies such as the United States and the Euro area are expected to remain challenging in 2020, global growth would be led primarily by emerging and developing countries such as China, India and the ASEAN region.
Despite the challenging global backdrop, the ASEAN region continues to witness robust economic expansion and is expected to post GDP growth of 5.0% and 5.1% in 2019 and 2020 respectively. This bodes well for the consumer FPP industry, especially as consumer spending and population growth remains on the uptrend, while urbanisation and shifts in consumer behaviour continue to drive higher demand for packaging.
Daibochi is well-positioned to capture these trends, supported by our plants in Malaysia and Myanmar. Additionally, the acquisition of MPP marks the beginning of a new chapter for the Group. The acquisition will enable us to expand our manufacturing capacity and capability and enables us to pursue more opportunities.
Against this positive regional outlook, I am confident that conditions are conducive for stronger results in the year ahead. This would be undergirded by continued efforts to enhance our overall operating efficiency, innovate new products and strengthen our clientele coverage, thereby reinforcing our position as a leading and preferred regional FPP supplier.
I would like to extend my gratitude to our Board of Directors, management, and employees for your keen efforts towards the Group’s successes to date. It is through your perseverance and diligence that Daibochi is again making new headway in the FPP sector not only in Malaysia, but also in the regional markets.
Furthermore, please allow me to extend a warm welcome to our Executive Director, Mr Heong Mun Foo, who was appointed to the Board of Daibochi on 4 April 2019, in addition to the role of Chief Financial Officer. He brings a wealth of experience in the fields of auditing, IPO, and liquidation, having had tenure at a prominent international accounting firm prior to joining Scientex in 2015.
I would also like to thank Mr Lim Soo Koon, who retires on 13 December 2019, for his immense contributions to Daibochi. Having joined Daibochi since 1995 and subsequently helming the Group as Managing Director since 2005, he has been instrumental in steering the Group to its present stature as a highly-regarded FPP player amongst multinational corporations across the region. The Board wishes him a well-earned and happy retirement.
My deepest appreciation also goes to our business partners, associates, customers and valued shareholders for your contributions and trust rendered to the Group. We look forward to growing from strength to strength with your continued support.
Heng Fu Joe
REPORTS AND CIRCULARS
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