A.J. Plast Public Company Limited March 2017 A.J. Plast Public - - PowerPoint PPT Presentation

March 2017

A.J. Plast Public Company Limited

March 2017

A.J. Plast Public Company Limited

• 2 -

Disclaimer

The information contained in this presentation is intended solely for your personal reference only. If you are not an intended recipient, you must not read, disclose, copy, circulate, retain, distribute or take any action in reliance upon this material. The information contained in this presentation does not constitute or form any part of any offer or invitation to purchase any securities and neither the issue of the information nor anything contained herein shall form the basis of, or be relied upon in connection with, any contract or commitment on the part of any person to proceed with any transaction. This presentation is not intended to substitute your own analysis and investigation, and should not be considered a recommendation to any recipient of this presentation. Some information contains projections and forward-looking statements that reflect the company’s current views with respect to future events and financial performance. These views are based on current assumptions which are subject to various risks and which may change over time. No assurance can be given that future events will occur, that projections will be achieved, or that the company’s assumptions are correct. Actual results may differ materially from those projected.

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AJ snapshot: One-stop BO (biaxially-oriented) film manufacturer

Business description Top 10 Shareholders

• AJ is a BO (biaxially-oriented) film manufacturer, offering one-stop service for BO film

used primarily in flexible packaging

• Expanded into CPP film and off-line chemical coating film to enhance product

portfolio and add value to existing products

• AJ is capable of producing full range of flexible packaging films which are:
• AJ is founded in 1987 and listed on the SET in 1990
• SET Ticker - AJ
• Bloomberg Code - AJ:TB

Value chain

Upstream petrochem. industry Resin producer e.g. IVL, PTTCH, UBE, TPC BO film producer Product manuf. e.g. food processor (CPF, TUF) Converter / Printer Consumer

Plastic resin Plastic film Packaging Finished goods

นาย กิตติภัต สุทธิสัมพัทน์ 24.31% นาย ภูมิพันฉัตร สุทธิสัมพัทน์ 11.62% นาย ณรงค์ สุทธิสัมพัทน์ 7.48% น.ส. อจลา สุทธิสัมพัทน์ 6.54% น.ส. วรัญญา ฉัตรพิริยะพันธ์ 2.81% บริษัท ไทยเอ็นวีดีอาร์ จ ากัด 2.29% นาย กิตติภัต สุทธิสัมพัทน์ 2.16% น.ส. ดารณี ฉัตรพิริยะพันธ์ 1.78% น.ส. โสพิศ ภูสนาคม 1.58% นาง นงนิภา สุทธิสัมพัทน์ 1.4%

Financial highlight

(as of 1Q2017)

Product

BOPP BOPET BOPA CPP

Capacity (MT/yr)

132,000 62,000 18,000 16,000

20000 40000 60000 80000 100000 120000 140000

Production Capacity

Unit: MB 2016 2015 2014 2013 2012

Revenue 7,032 6,259 6,545 5,452 5,287 Net profit 121 4

• 248
• 98

190 Total assets 8,495 8,244 8,243 7,542 6,108 D/E ratio 1 .62 1.6 1.62 1.22 0.72 P/E 47.11

• 54.69

36.65 Market cap. 5,386 2,397 3,535 3,695 6,000

• 4 -

Schematic of BO Film Industry

• 5 -

AJ snapshot: An overview of BO film production process

Ev alene

Evalene Evalene Evalene Evalene Evalene Evalene Evalene Evalene Evalene Evalene Evalene Evalene Evalene Evalene

main extruder

co- ex 1 co- ex 2

Raw Material Feeding

Extrusion

(Extruder)

Casting

(Casting Section)

Longitudinal Stretching

(Machine Direction Orienter)

Transversal Stretching

(Transverse Direction Orienter)

Flame/Corona Treating

(Pull Roll Section)

AGEING

(Ageing Rack)

Slitting

(Main Slitter Machine)

Secondary Slitting

(Secondary Slitter Machine)

Weighing / Packing Loading Delivery Winding

(Winding Section)

Storage

BOPP PROCESS FLOW DIAGRAM

• 6 -

Equipped with engine to achieve growth: Leader in Southeast Asia

Well-planned capacity expansion Additional capacity towards leadership

SEA’s largest BO film producer in all segments since 2014

Year BOPP BOPET BOPA CPP

VALUE ADDED LINE

1987

• 1st BOPP

1995

• 2nd BOPP
• 1st BOPET

2001

• 1st Metallizer

2003

• 3rd BOPP
• 2nd BOPET
• 2nd Metallizer

2006

• 1st BOPA

2008

• 4th BOPP

2010

• 3rd Metallizer

2011

• 3rd BOPET
• 2nd BOPA

2013

• 5th BOPP
• 4th BOPET

2014

• 6th BOPP
• 1st CPP
• 4th & 5th

Metallizer 2015

• 6th Metallizer

2016

• 1st Coater

(Unit: MT) 2010 2011 2012 2013 2014

BOPP BOPET BOPA (Nylon)

105,000 115,000 155,000 242,000

Total capacity

8,000 18,000 18,000 18,000 18,000

31,000 31,000 31,000 31,000 62,000 66,000 66,000 66,000 106,000 146,000

115,000

16,000

CPP

2014-Present

• 7 -
• Protect the product from chemical /

biological exposure

Health

• Minimum use of resources
• Easy to empty / recycle

Environment

• Easy to handle, store & transport

Logistics

Recent structural changes of packaging industry: Catalyst for BO film demand

22% 18% 17% 17% 3% 11% 12%

U.S. packaging industry (2009)

Corrugated Flexible Misc rigid plastics & bottles Paperboard Metal cans Glass Others

?

Source: U.S. Census Bureau data & Flexible Packaging Association estimates

The market is overwhelmed by various packaging alternatives Key requirements for packaging

• Easy to manufacture & cost efficient

Economy

• Easy to open, hold & close
• Inform consumers about the product

Usability

• Contain, Inform, Protect, Transport &

Display

Basics

Flexible packaging has gradually replaced conventional ones

Conventional Flexible

Flexibility and functionality at competitive cost for producer and affordable price for consumer is key driver of flexible packaging trend at present

What is the BEST one?

Flexible packaging provides many consumer conveniences including extended shelf life, easy storage, microwaveability & resealability

• 8 -

Flexible packaging: Significant value and benefits to the market

FLEXIBLE PACKAGING (FP)

Resource Recovery Sustainability Advantages Light Weighting

FP reduces waste, energy consumption & greenhouse gas emission FP waste can be reproduced into new FP FP waste may be used as feedstock to produce gaseous & liquid fuel The lightweight package produces “less waste at the first place” Examples of light weighting between 2005 -2011:

• Barrier enhancement: resulted in 50% less material for the same barrier
• Material toughness: layers reduced up to 50%
• Coextrusion technologies: enable weight reduction of up to 33%
• Equipment innovation: allows some film thickness to be reduced to 50%

Beverage packaging example Glass bottle & metal cap Plastic PET bottle & cap Aluminum can Stand-up flexible pouch Product weight (g) 236 236 236 199 Packaging weight(g) 198.4 22.7 11.3 5.7 Product-to- Packaging Ratio 1:1 10:1 21:1 35:1 Packaging weight per 100 g product (g) 83.9 9.6 4.7 2.8 MSW/1 landfill per 100 g product (g) 54.5 6.0 2.4 2.8 Energy consumption (MJ/8 oz) 3.36 3.00 0.99 0.45 Emissions (Kg Co2e/8 oz) 0.29 0.18 0.08 0.02 1 2 3 4

Advantages of FP over alternative packaging

Remark: /1 MSW stands for municipal solid waste Source: FPA (Flexible Packaging Association) Case Studies

• The flexible beverage pouch consumes ½

the amount of energy compared to the closet alternative

• The flexible beverage pouch generates ¾

less emission than the closet alternative

• The flexible beverage pouch uses less space

in shipping than other alternatives, reducing transportation emission while saving costs

Flexible packaging (FP) sustainability initiatives     

• 9 -

AJ Plast: Strategies

No.1 in Southeast Asia The lowest cost producer Sustainable growth

• Offer comprehensive range of film products
• Diversify business risk and mitigate volatile

profit

One-stop service Premium market penetration

• High value-added product
• Target Japanese market
• Massive demand of 280k MT/yr
• Premium price opportunity
• High level of quality requirement
• Technical know-how improvement
• Global shift from traditional to flexible

packaging

• Flexible packaging mainly correlates with

food and consumer product sectors, thereby indicating sustainable & resilient demand

Flexible packaging trend

• Invest in the state-of-the-art machinery
• Increase productivity
• Reduce energy consumption
• Reduce plastic waste
• Able to produce higher grade films
• Invest at the right timing
• Gain promotional privileges (esp. tax

incentives) from the Board of Investment

Right investment

• Realize greater level of economy of scale as

the company grows

• Deepen sourcing skills to obtain advantage
• f material cost minimization

Efficiency improvement

• Continuous Expansion from 2010-2018
• Achieve the largest capacity in all BO film

segments in 2014

Capacity expansion

• Cautiously expand product portfolio to be

the industry leader:

BOPP since 1987, BOPET since 1995, Metallizer since 2001, BOPA since 2006, CPP since 2016, and Chemical Coated Film since 2017

Portfolio enlargement

• Fully dedicate to quality excellence at all

levels of production

Quality excellence

How to Achieve the Goals

• 10 -

AJ Plast: Unique Positioning

Complete Product Line Latest Production Fleet

• AJ Plast offers customers with complete product lines for

flexible packaging including BOPP, BOPET, BOPA, CPP and metallized film.

• Product ranges from high volume commodify products to high

value-added specialized products such as transparent barrier films

• AJ Plast replaced old machines with smaller capacity, less

efficiency, higher production cost with new ones with larger capacity, higher efficiency, and lower production cost at appropriate periods.

• Currently, 70% of production capacity is coming our from

Production line with ages less than 6 years

Benefits Benefits

• One-stop supply for local and export customers
• Lower sales and administration costs per sales value
• Smoother business cycles with less volatility
• Enjoys more frequent product cycles compared with relying
• n only one product cycles
• Becomes a lowest cost producer with better efficiency in both

raw material, energy consumption, and manpower

• Enhance competitiveness in local and global market
• Better quality - a ticket to enter and stay in premium market
• More flexibility to produce high value-added products
• Better spare part management – less cost and high machine

reliability

• 11 -

20,000 40,000 60,000 80,000 100,000 120,000 140,000 2005 2010 2015 2016 Export Local

38,405

Diversified customer base: To decrease reliance on any particular economy

AJ sales quantity (MT)

81,520 98,689 121,263

AJ sales mix by proportion (%)

• 12 -

Diversified customer base: To decrease reliance on any particular economy

AJ Customer Base

Reduce dependency and minimize particular country risk Avoid anti-dumping measure enforcement Individual country (except TH & JP) is targeted to contribute no greater than 5% of AJ’s total sales

Taiwan Vietnam Japan China Malaysia U.S.A. Hong Kong Australia Switzerland Italy Philippines Singapore Indonesia Thailand England Germany Nigeria Mexico

• 13 -

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2

• 200,000

400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000

Japan USA- Canada Western China Near/Far East South America Eastern Africa

kg / year Population in thous. Population in thous. Consump./year

BOPP film industry: Opportunity from sustained growth with recent limited expansion

The history confirms the unremitting expansion in world film demand

• Demand for BOPP production was growing stronger than expected (CAGR (1998-2014) of 8.6%

globally, 15% in China)

• Huge Market at more than 8 million MT per year
• Relatively limited capacity expansion expected in 2017-2018, leaving vulnerability in supply shortage

in the next couple years BOPP film consumption by Region

Source: Industrial Source

• 14 -

BOPP film industry: Sustained growth with recent limited expansion

Source: Industrial Source

• 2,000,000

4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Tons per Year (tpa) Demand Production Demand Production

BOPP WORLD Demand / Production

• 15 -

BOPET film industry: The worst has passed, but still need time to fully recover

• CAGR (1998 – 2014) of 7.5% for BOPET
• BOPET production capacity was increased drastically during 2011-2014,

especially in China and India causing serious global oversupply of BOPET film

• While investment in new machines was slow down since 2015, there will be at

least a couple years until the increasing demand can gradually absorb all the production capacity

• Spread between BOPET film and PET resin will remain at low level, but will

eventually get better gradually in couple years

• 16 -

BOPET film industry: The worst has passed, but still need time to fully recover

• 1,000,000

2,000,000 3,000,000 4,000,000 5,000,000 6,000,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Tons Demand Production Demand Production

BOPET WORLD Demand / Production

Source: Industrial Source

• 17 -

BOPA film industry: The Dawn of the New cycle

• In 2016, the demand of BOPA film in China was increased 15% while BOPA

production capacity expansion was not enough to serve the gradually increasing demand

• At the same time, price of PA resin was down due to over-capacity situation of

Caprolactam which, in turn, widening the spread between BOPA film and PA resin

• Moving to end of 2016, BOPA film was under shortage especially in China,

bumping the price up 25% in fourth quarter with lead time for delivery of 2.5-3 months.

• Lead time for new machinery including installation and commissioning is more

than 2 years with limited number of machines to be supplied by a single machine supplier causing slow capacity expansion

• 18 -

• 19 -

BOPA film is one of the main three package materials (another two are BOPP & BOPET). The resin PA6 comes from ring opening polymerization of CPL. Through melt extruded and bio-oriented stretched it will become BOPA film. BOPA film is named as “queen of film” as its high strength, good toughness, wide range of application temperature, good resistance to acid & alkali and excellent barrier to gas & order. It’s widely used in food package, cosmetic package, electron package & field of construction chemicals. The second half year of 2015 to 2016, the price of BOPA has gone up for several times, the deliver term of orders become longer and longer, while BOPA film is getting shorter and shorter. Why all these happened? The direct reason is price of up steam resin going up. The price of CPL has gone up all the way in 2016. Some analysis pointed out that it’s because of over sales of PA6, it became more and more serious to end of

• 2016. For example, the price of PA6 has increased 6,000-8,000 RMB/T during Nov. to Dec. 2016, price rise up to 40%.

Although the price of resin going up a lot, it doesn’t affect the demand of BOPA. The price of CPL is high and short of demand, so as PA6, price of BOPA also follow to go up. Increase demand of BOPA down steam is the important reason of BOPA price going up. The value of gross output of the global packaging market is $ 839 billion by 2015, and is currently growing at average annual rate of nearly 5% . It is estimated that the global packaging industry will reach $ 998 billion by 2020. Global demand for plastic film is also growing at an average annual rate of 5%. Throughout the global BOPA film market, the world's largest supplier are concentrated in the Asia Pacific region, while China's annual production of BOPA has accounted for more than 30% of global production, has become the world's largest BOPA supply and demand. Demand of domestic BOPA market increased by 15% in 2016 than in 2015, growth rate is doubled compared to the previous year. The growth of BOPA demand is rapid in 2016, will continue to become main engine of global growth for BOPA film market in the future. Japan's Unitika shuted down the factory and Foshan Plastic Group stopped the line for long term in 2015 reduced the supply of domestic BOPA in a certain extent; the world's population is increasing and it is expected to increase by 1 billion and city population by 1.1 billion in the next 10 years; living is more green, more environmentally friendly, packaging is more diversified. Independent packing is more and more popular. Except the application of traditional food packing and chemical packing, the application of lithium battery film and special nylon film will cause the increase demand of BOPA film. The increasing speed of output BOPA is slowing down, the increasing population, improve of living life and more application field are important reasons of short of BOPA. Source: PFCHINA.COM.CN (http://www.pfchina.com.cn/00/0012/001201/2017/5379890460010.asp)

Why BOPA Film price in China are going up?

• 20 -

BOPA film industry: The Dawn of the New cycle

• 50,000

100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Tons Demand Production Demand Production

BOPA WORLD Demand / Production

Source: Industrial Source

• 21 -

BOPA and BOPET Cycles: The Differences

• There

are many BOPET manufacturers around the world which could make investment immediately

• nce

market indicates the start of product cycles

• BOPET does not require high expertise and

knowhow to run which attracts new comers to enter the business

• There were two BOPET production line

manufacturers (Brueckner and Dornier) competing head-to-head so that each aims to take as much order as they can

• Some

applications could be switched between BOPP and BOPET (although taking some time) if price is too high

• There

are fewer BOPA manufacturers compared with BOPET/BOPP

• BOPA requires expertise and knowhow to run

efficiently with high productivity and low

• waste. New comers are aware that they

may not be able to compete with existing players

• There is only single BOPA production line

manufacturer now (Brueckner). Capacity expansion is slow and limited. Lead time for machine delivery is long (more than two years from contract date to start production)

• BOPA film applications requires special

properties that are not available in BOPET or BOPP

BOPET BOPA

• 22 -

Market Update: Spreads Insight 2015-2017

BOPP

• BOPP has been maintaining its spread in the last 2 years with

recent small surge in the beginning of 2017 due to market demand/supply condition.

• In medium term, there is a positive trend in the spread as

there had been only some capacity expansion in 2015-2016 and still no known expansion plan in 2017 while global demand keep increasing at 8.6% of 8 million metric tons per year or approximately 680k MT (equivalent to 20 latest generation BOPP machines)

BOPET

• BOPET still remains in difficulties as spread is still considered to be

lower than other films due to huge surge in production capacity during/after the last BOPET cycle.

• Market still needs more time to absorb the additional capacity

which will take at least another couple years. Before that, spread for BOPET film will still be under high pressure.

Source: Chinese Industrial Source

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500 1000 1500 2000 2500 3000 3500

Spread BOPA

Market Update: Spreads Insight 2015-2017

BOPA

• BOPA is a clear winner since 2H2015 – Present with continuously increasing spread trend

from USD940/mt in June 2015 to USD2750/mt in Jan 2017.

• The trend is continue to increase/maintain as there is no new capacity planned to be

coming out soon.

• There will be small capacity coming in second half of 2018 but will not be enough to serve

increasing demand in China.

Source: Chinese Industrial Source