Oji Holdings Details Strategy in Buying Malaysian Paper Companies

According to a report late this past week by The Star (Malaysia), during the last few years, Japanese pulp and paper manufacturer Oji Group has made news in Malaysia as it began to expand very quickly in the country by way of acquiring local companies, and then expanding its factories in the country.

In Malaysia, Oji Group operates six carton factories and two paper mills, beginning with the acquisition of a 75% stake in GS Paper & Packaging Sdn Bhd (GSPP), a major player in Malaysia’s domestic containerboard segment and the largest integrated paper and packaging manufacturer in 2010. The remaining 25% is held by Manubeni Corp, a Japanese trading giant.

Overseas, Oji Group has operations in China, India, Australia, New Zealand, Vietnam, Laos, Cambodia, Thailand, Malaysia, and Myanmar. Generally, corrugated carton companies in Malaysia lack economies of scale and are not competitive.

"It’s a fragmented market," GS Paper & Packaging president Sia Boon Soon told StarBizWeek, a subsidiary publication of The Star, in an interview. "There is a need for rationalization to reduce the number of companies, especially the small to medium-sized factories," he said.

Acquisition mode:

The group, which is focused on deepening its foothold in South East Asia has since bought over Johor-based carton manufacturer United Kotak Bhd and HPI Group of companies--which has a paper mill, a wrapping paper factory, a plastic packaging factory, and four carton and sheet board factories located in the northern, central, and southern region as well as a carton factory in Cambodia-- followed by three new carton factories in Parit Buntar in Perak, Nilai in Negeri Sembilan. and Johor Baru.

Oji wholly acquired United Kotak for RM62.9 million and HPI for RM257.5 million, and 75% of G-P Paper & Packaging due to the low margin nature of the industry. The group then came up with a new policy to ensure that each plant produced 60,000 metric ton of output a year for better economies of scale. These plants are equipped with high quality printers to meet customer requirements and energy saving features to be more cost competitive.

Meanwhile, Oji Group has been upgrading its existing factories too, all of which has yielded an average growth rate of 5% since 2011 and improved profitability.

Sia said that in the paper industry, paper mills have small decker width machines that are not efficient, bringing about a low productivity while consuming high volumes of energy and cost. Additionally, the Malaysian market is small compared with neighboring countries such as Thailand and Indonesia.

"Our challenge is to build a larger paper mill with about 300,000 metric tpy of capacity to meet the local market demand and be competitive on exports to the Asean region and other overseas markets," Sia said.

In February 2016, the group signed a share sales agreement to acquire 100% of all issued shares of Dazun Paper Industrial Company Sdn Bhd, a move made to overcome shortage in capacity by utilizing the spare land available next to the company’s current plant in Klang, which is located close to its customers.

Oji intends to spend an additional RM50 million to extend the factory as well as invest in new machinery. Currently, the company is obtaining the necessary regulatory approvals for the construction of the new building. Oji has spent about RM100 million for both of HPI’s new factories in Parit Buntar and Nilai to double their capacities to 36,000 metric tpy and 48,000 metric tpy, respectively. Additionally, the group forked out RM60 million for a new factory for United Kotak Bhd in Kulai Jaya, Johor to bring its capacity up to 48,000 metric tpy from 30,000 metric tpy. The group continues to plan for further expansion in Malaysia.

"Malaysia operations are generating healthy surplus cash that will enable future investments," Fong said. "These are all internally-generated funds.

With these factories in the bag, Oji continues to grow by way of expansion of existing factories and acquisition i to hit its targeted market share of 30% in Malaysia. As for its paper making operations, it is considering furthering its operations at the Kuala Langat paper mill complex in the future.

Oji has since diversified into the household products business with the acquisition of People & Grit, a diaper manufacturer in Shah Alam, Selangor. The renamed business, Oji Asia Household Products, was set up with its factory located next to GSPP so as to magnify the group’s presence in the local baby diaper market. Commercial operations commenced in March 2016 and the group is planning on investing and additional RM40 million to expand the business by adding more production lines.

"Household products have been identified as core business for the group. Our goal is to create a household brand among consumers in Malaysia and Asean with strong product branding, distribution network, and quality products with technology from Japan," Sia said.