Tuesday, Sep 16, 2003
The rating assigned reflects Stenta Films (Malaysia) Sendirian Berhad’s (Stenta) leading position in manufacturing quality Biaxially Oriented Polypropylene (BOPP) films, the most commonly used flexible packaging material for customers involved in the food and tobacco industries; and Stenta’s improving financial profile. Offsetting these positive factors are concerns over Stenta’s ability to pass through increases in the cost of raw materials or resins to customers and the limited financial flexibility afforded by its Indonesian parent company, P.T. Argha Karya Prima Industry of Indonesia (AKPI).
With its current annual capacity of 18,000 tonnes (equivalent to more than 50% market share), Stenta is the leading domestic BOPP films producer which has been in operation for 10 years. It is the regional supplier to JTI and Philip Morris and the only Asian company qualified to supply British American Tobacco’s global BOPP film requirement. Whilst low-cost Chinese producers from Mainland China pose only a minor threat for the time being due to the lack of expertise, the possibility of other international producers setting up plants in China to capitalize on the low production costs is quite real.
Stenta is somewhat exposed to the volatile pricing of petroleum-based resins which account for 50% of cost of sales. Historically, the company had been able to pass the full cost increase to its quality-conscious customers except for the crisis years where there was an excess supply situation due to dumping by the Korean and Thailand BOPP film suppliers.
Demand from the domestic market and China region, especially in food packaging, contributed to the revenue growth post-crisis years. Operating margin hovered around 15% during FY2001 up from 7% in FY1998, attributable to raw material costs pass-through and interest savings from debt restructuring. Stenta’s cashflow protection measures improved gradually to record double digit operating cashflow interest coverage ratios for three consecutive years and a finance service cover ratio (FSCR) of 1.6 times during FY2001. Under MARC’s sensitivity analysis , the cashflow was found to be sensitive to Stenta’s ability to pass through cost increases in its raw materials.
Stenta’s debt leverage edged lower aided by the restructuring of its foreign currency borrowings and accumulated earnings. The proforma debt-equity ratio stands at a manageable 1.53x. Debt leverage is expected to decrease following the scheduled redemption of the MuNIF and the absence of major capital expenditure plans in the near term. Financial support from AKPI will only be forthcoming upon completion of its own restructuring exercise. Despite being a Non-Resident Controlled Company (NRCC), the local management has demonstrated the ability to lead Stenta through the economic crisis and entrench its position as one of the leading BOPP film producers in the Asia-Pacific region.
With its current annual capacity of 18,000 tonnes (equivalent to more than 50% market share), Stenta is the leading domestic BOPP films producer which has been in operation for 10 years. It is the regional supplier to JTI and Philip Morris and the only Asian company qualified to supply British American Tobacco’s global BOPP film requirement. Whilst low-cost Chinese producers from Mainland China pose only a minor threat for the time being due to the lack of expertise, the possibility of other international producers setting up plants in China to capitalize on the low production costs is quite real.
Stenta is somewhat exposed to the volatile pricing of petroleum-based resins which account for 50% of cost of sales. Historically, the company had been able to pass the full cost increase to its quality-conscious customers except for the crisis years where there was an excess supply situation due to dumping by the Korean and Thailand BOPP film suppliers.
Demand from the domestic market and China region, especially in food packaging, contributed to the revenue growth post-crisis years. Operating margin hovered around 15% during FY2001 up from 7% in FY1998, attributable to raw material costs pass-through and interest savings from debt restructuring. Stenta’s cashflow protection measures improved gradually to record double digit operating cashflow interest coverage ratios for three consecutive years and a finance service cover ratio (FSCR) of 1.6 times during FY2001. Under MARC’s sensitivity analysis , the cashflow was found to be sensitive to Stenta’s ability to pass through cost increases in its raw materials.
Stenta’s debt leverage edged lower aided by the restructuring of its foreign currency borrowings and accumulated earnings. The proforma debt-equity ratio stands at a manageable 1.53x. Debt leverage is expected to decrease following the scheduled redemption of the MuNIF and the absence of major capital expenditure plans in the near term. Financial support from AKPI will only be forthcoming upon completion of its own restructuring exercise. Despite being a Non-Resident Controlled Company (NRCC), the local management has demonstrated the ability to lead Stenta through the economic crisis and entrench its position as one of the leading BOPP film producers in the Asia-Pacific region.