Leading flexible packaging manufacturer Daibochi Berhad, formerly known as Daibochi Plastic And Packaging Industry Bhd, (Daibochi; 耐慕志; Bloomberg: DPP:MK; Reuters: DPPM.KL) proposed to acquire the entire equity of flexible plastic packaging (FPP) player Mega Printing & Packaging Sdn Bhd (MPP) for total cash consideration of RM125 million.
Established in 1997, Melaka-based MPP manufactures downstream flexible packaging comprising roll-form and pre-made pouches with laminated structures mainly for F&B applications, including confectionary, snacks, noodles and powdered beverages.
Daibochi will acquire 4.5 million ordinary shares in MPP for RM125 million. The purchase consideration, which will be funded through internally-generated funds and/or bank borrowings, represents an Enterprise Value (EV) over EBITDA (1) of 8.07 times based on MPP’s audited financial results for the financial year ended 31 December 2017.
Mr. Thomas Lim (林树坤), Managing Director of Daibochi Berhad said:
“Getting on the acquisition trail places Daibochi on the higher growth trajectory, even as we strengthen our position as a super regional player in the FPP segment.
This acquisition sees two leading FPP giants with strong track records joining forces, possessing cumulative experience of close to 70 years. The exercise not only combines our respective prowess in product portfolio and manufacturing capacities, but also extends our reach through the wider network of customers and suppliers.
Moreover, the proposed acquisition effectively pools resources including human resources, technical expertise and market insight, in addition to enhancing raw material purchases and other efficiency measures that would be beneficial for customers of both Daibochi and MPP.
From a larger perspective, MPP would come onboard the Scientex growth partnership platform within the Daibochi fold, to fulfil increasing demand from multinational corporations and brand owners locally and abroad.”
Daibochi became a 61.9% subsidiary of Scientex on 1 April 2019 following a share sale by several Daibochi vendors and conclusion of the Mandatory General Offer by Scientex.
MPP’s manufacturing plant in Kawasan Perindustrian Teluk Emas, Melaka has a production capacity of 264 million metres of FPP, with a utilisation rate of 68.3% in 2018. Together with Daibochi’s manufacturing facilities in Ayer Keroh and Jasin, Melaka, the combined production capacity would increase by 33.3% from 792.53 million metres to 1,056.53 million metres per annum.
MPP achieved RM7.8 million net profit on RM128.8 million revenue in FY2017. 86.5% of MPP’s FY2017 revenue was derived from Malaysia-based customers, with the balance 13.5% from export markets such as Philippines, China, Mauritius and Kuwait.
As at 31 December 2017, MPP recorded positive cash flow from its operating activities amounting to RM10.4 million, and had fixed deposits, bank and cash balance of RM15.6 million as well as bank borrowings of RM3.4 million, which translates into a net cash position.
The proposed acquisition is conditional upon MPP fulfilling conditions precedent, and is subject to the approval of the Board of Directors and shareholders of Daibochi at an Extraordinary General Meeting to be convened.
Barring any unforeseen circumstances, the acquisition is expected to be completed in the third quarter of 2019. The acquisition is expected to benefit immediately from the consolidation of MPP’s revenue and earnings contributions.
Thomas Lim added: “The proposed acquisition is value-accretive on multiple fronts. Existing and potential customers would be able to leverage on our multi-location production facilities and enhanced economies of scale as part of a larger entity, while Daibochi and MPP would be able to amass larger production capacity, derive resourcesynergies, and undertake product development to build long-term sustainability.”
“We are certain that the proposed acquisition augurs well for us,” concluded Thomas Lim.
(1) Earnings before interest, tax, depreciation and amortisation
