KYM looks to electric vehicles and renewable energy to fuel its business transformation

THE retirement of KYM Holdings Bhd founder Datuk Lim Kheng Yew, along with the departure of a few other board members on July 5, is set to usher in a new phase for the group, whose core business is manufacturing and sale of industrial packaging. some products.

Deputy CEO and CEO-Elect Darren Lee Ji Jin leads the group’s business in electric vehicles (EVs), semiconductors and renewable energy management business with the aim of future-proofing the business and make a valuation change.

“We want to sustain the business, provide alternative sources of income and branch out into other sectors. We are very committed to the electric vehicle sector and are not entering a virgin field. The only way is to acquire a company that has positive earnings visibility,” he told The Edge.

West River Capital Sdn Bhd (WRC) holds a 7.21% stake in KYM and is its third largest shareholder. West River is also a factor in KYM’s interest in the electric vehicle space, as the former’s wholly owned subsidiary, TSM Global Bhd, owns a 60% stake in JK Wire Harness Sdn Bhd (JKWH), the nation’s leading wire harness manufacturer and supplier. for automobiles.

Lim’s son, Lim Tze Thean, is the executive director of JKWH. He also assumed the positions of Executive Chairman and Interim CEO of KYM.

Major automakers such as Perodua, Honda, Mazda, Mitsubishi, Nissan and Toyota are JKWH customers, and a number of them are already producing hybrid vehicles and are actively involved in the development of electric vehicles.

JKWH also has long-standing global partnerships with Sumitomo Wiring Systems Ltd in Japan, Kyungshin Co Ltd in South Korea and Sumitomo Electric Bordnetze SE in Germany.

A former senior executive in the corporate affairs division of TSM Global, Lee also led the investment division and reviewed potential investment valuations, business acquisition, new business initiatives, due diligence, fundraising, capital evaluation and group strategic initiatives. Remember that TSM Global was privatized and withdrawn in 2012.

Explaining the new trajectory in the automotive sector, Lee says, “I want to take KYM through a change in the evolution of the price-earnings ratio (PER). Bursa packaging companies’ PERs are currently 10-15 times very conservative. What if I could move this to an industry that commands higher [PER] ratings like 30 to 50 times?

To accelerate the plans, new talents are being recruited. “We bring new blood to the board with diverse backgrounds. We are building a wonderful new team at KYM ​​to drive us forward. Earlier this month, we appointed a new chief operating officer, Datuk Takashi Hibi, former vice president of UMW Toyota. It will build on my existing business and help me explore new avenues such as strategic partnerships and joint ventures. »

However, he declined to provide details on the EV, semiconductor and renewable energy companies.

Lee says the group is sitting on a strong cash balance which can help fund ventures in new ventures and ongoing acquisitions, having earned RM22.97m earlier in the year from a land disposal. . At the end of its financial year ended 31 January 2022 (FY2022), KYM had cash, fixed deposits and bank balances of RM14.33 million, with total borrowings of RM27.17 million, indebtedness net was 0.14 times.

“We are trying to monetize our non-core assets, such as the sale of our unused land, which will bring cash to the business, which will be used as a war chest to embark on this new vision.

“We have strong capital support from shareholders and financial institutions and are ready to seize any opportunity that may arise,” Lee said, hinting at further company developments in the near future.

Given his ambitions, it’s no surprise that Lee aims to grow KYM into a blue-chip company in Bursa Malaysia with a market capitalization of RM500 million in three to five years, about seven times bigger than his 81 current RM.2 million, with a historical PER of 10.1 times.

Eyeing India for acquisition of cement packaging plant

Lee says the excitement of exploring new areas won’t diminish the group’s focus on its core business – multi-wall industrial paper bags – which contributes 80% of KYM’s revenue. The cardboard division contributes to the balance of the group’s turnover.

He sees greater growth opportunity in yet-to-be-unlocked cement packaging in regional markets, particularly in India, which has recently undergone major consolidation among major cement producers.

Indian conglomerate Adani Group has acquired Holcim AG’s cement business in India for US$10.5 billion, in its largest-ever acquisition, to become the country’s second-largest cement maker.

“India recently announced a ban on single-use plastics, but with an exemption for industrial plastic packaging for the time being. But, over time, there is a shift towards paper bags.

“The reason the collection is slow is because the cost of producing paper bags is high. We tried to lobby in the Indian market by collaborating with a cement company, but we were too small. But we are confident that sooner or later they will move towards sustainable packaging which will open up growth opportunities for KYM,” says Lee.

India is currently the world’s second largest cement producer, accounting for 8% of global cement production with an estimated production capacity of 550 million tons per year.

Currently, KYM is exporting its multi-wall industrial paper bags to Indonesia, Thailand and Singapore. In fiscal 2022, some 21% of its revenue came from the export market.

Lee also hints that the company is looking to acquire packaging plants in regional markets that are up for sale, particularly in India, due to its large population and robust growth in the construction industry.

“It is difficult to go and install a completely new installation in a new market. It is therefore much easier to buy a running business. We are in a conversion business. We transform the paper into bags and sell them to cement factories. In many of these countries, cement factories have integrated the industrial production of paper bags. This means that they have their own factory within their cement works.

“But what we’ve seen over the years is that when these cement companies go through corporate exercises, such as bringing in new shareholders or consolidating, they like to divest and just focus on their business. cement business, so I think those are all of our opportunities.

Domestically, Lee believes the continued growth of the cement industry will bode well for KYM.

“Construction cement continues to grow over the next two to three years. YTL [Corp Bhd] is one of the biggest cement players in Malaysia, and they would serve as the main driver of the overall demand for our product. We continue to monitor their inventory,” he says.

For the first quarter ended April 30, 2022, KYM recorded a net profit of RM4.49 million compared to RM98,000 a year ago, driven by a higher profit contribution from the multi-industrial paper bag division. -walls, along with the reopening of economic activities in the country.

Additionally, on July 5, KYM announced the departure of Executive Chairman Datuk Seri Isahak Yeop Mohamad Sahar and four of his directors from its Board of Directors.

KYM shares closed at 53.5 sen apiece last Thursday, valuing the group at RM81.2 million.