SCGM ... Why Share Price Up?

The protracted slump in crude oil prices and the weakened ringgit against the USD are proving to be boon for local plastics manufacturers – the former is an essential raw material in the production of polyethylene resin, and the latter provides obvious foreign exchange gains for export oriented players.

 

SCGM is one company that is expecting a windfall from these two developments.

 

It exports up to 47% of its products.

It is anticipating record profits in its 4QFY2014 ending April 30 2015.

Falling crude oil prices have resulted in cheaper product-ion of polyethylene.

SCGM generally use SGD and USD for its dealings. The weakness of the ringgit is good for SCGM as it sees extra benefits in terms of forex gains.

 

Low oil prices resulted in a 30% drop in the price of polyethylene. This will result in short term improvement on the margins of plastics manufacturers.

 

Apart from SCGM, other downstream players like Daibochi and Packaging Industry are least likely to be affected as their clients are mostly food and beverages companies.

 

The demand of plastics packaging is expected to grow in tandem with population growth and urbanization.

 

It will be setting up a factory in Japan soon. It is also considering India and Australia.

 

For TGuan it is not experiencing the positive effects of the forex yet. The appreciation of the USD is generally good for it as 75% to 80% of its sales is in USD. However in Dec 2014 it had some carried over hedged USD position against the ringgit.The positive effects of the weaker ringgit will only be reflected in its 2Q results after the unwinding of the hedging effects.