Tien Wah follows BAT lead

PETALING JAYA: Tien Wah Press Holdings Bhd is closing down its 57-year -old printing business in Petaling Jaya following the exit of its major customer British American Tobacco (Malaysia) Bhd (BAT) last year.
A total of 237 employees will be made redundant with the winding down of its factory operations here.
Tien Wah told Bursa Malaysia that its wholly owned subsidiary Tien Wah Press (Malaya) Sdn Bhd’s (TWPM) decision to cease its printing business is in line with the reorganisation of its production footprint, which is part of normal routine operational function to improve the group’s strategic positioning to service the customers and reduce operating cost over the longer term.
However, Tien Wah stressed that TWPM is not its major subsidiary as it only constitutes about 13.6% of the group’s audited net assets as at Dec 31, 2016.
TWPM contributed 20.1% and 11.8% to the group’s unaudited revenue and profit before tax for the first quarter ended March 31, 2017 respectively.
TWPM was incorporated in Malaysia in July 1960 and is engaged in rotogravure printing specialising in cigarette cartons and consumer goods packaging, as well as photolithography printing specialising in cartons, labels packaging and advertising materials.
Currently Tien Wah also has two plants in Vietnam, and one each in Australia and Indonesia. It is unknown if the new plant in United Arab Emirates has been completed.
Based on preliminary review, Tien Wah said the estimated cessation cost is RM12.19 million comprising employees redundancy and related costs (RM11.64 million) and asset impairment cost (RM552,000), being the impact to the consolidated earnings for the current financial year ending Dec 31, 2017.
This translates into a reduction of eight sen in earnings per share and net assets per share.
Under the proposed cessation, TWPM’s assets will also be disposed of for RM29.05 million, including plant, machinery and equipment, motor vehicles, repair parts and office equipment.
In explaining the closure, Tien Wah said there is no requirement for duplication of printing base in Malaysia following the cessation of its major customer’s operations in Malaysia and the subsequent shifts in production facilities to Singapore, Korea and Indonesia.
Hence, it noted that it will transfer its majority production volumes from TWPM to Vietnam and Indonesia to improve its strategic position to service the customer and reduce the group’s operating cost over the longer term.
“The board is of view that the reorganisation of its production footprint which involves the cessation of TWPM’s printing business is therefore timely,” it said, adding that the closure is expected to be completed by the end of the year.
Its shares fell one sen to close at RM1.90 yesterday on some 38,800 shares done, bringing it a market capitalisation of RM275 million.
Citing challenging business environment, BAT last year announced the closure of its plant in Petaling Jaya which affected about 230 employees. Its plant in Jalan Universiti will be closed down completely in the second half of the year.
BAT announced its second-quarter results ended June 30, 2017 with net profit jumping three fold to RM144.08 million from RM47.72 million in the previous corresponding period, due to the absence of restructuring expenses incurred last year.
Revenue, however, declined 19.6% from RM962.58 million to RM774.09 million, dragged down by the decline in volume.
It has proposed an interim dividend of 43 sen per share for the quarter under review.
BAT’s first half net profit soared 17.2% from RM220.33 million to RM258.31 million on the back of a 22.1% drop in revenue from RM1.98 billion to RM1.54 billion.
The group said it remains concerned over legal volumes continuing to be impacted by the current high incidence of illegal cigarette trade.
“The outlook of the second half of 2017 will be very much dependent on the recovery of the legal market,” it noted.
BAT’s share price ended the day 28 sen higher at RM43.88, with some 577,100 shares changing hands. It has a market capitalisation of RM12.53 billion.