M&As In The Plastics Industry: Opportunities Or Challenges?

Plastic packaging will continue to be a profitable industry

In 2017, the net profit margin of plastic packaging enterprises in Vietnam was estimated to fall by one percent due to a 3 percent increase in the PP plastic bead import tariff commencing early this year. 

PP is the main material that thousands of plastic packaging enterprises must use. Eighty percent of it comes from imports. 

The plastic industry has a relatively low profit margin of 5 percent, while the loss rate is up to 7 percent.

Nevertheless, Vietcombank Securities believes that the potential of Vietnam’s plastic industry is great because plastics consumption in the country is still low, 41 kilograms per head per annum, compared to the average level of 48 kilograms in Asia and 70 kilograms globally.

According to Ly Hoang Anh Thi from Vietcombank Securities, 12 plastic packaging enterprises making soft packs, food packs, PET and packs used in construction have listed their shares on the bourse with total capitalization value of over VND4 trillion.

The M&A wave, which has been strong in the last few years, has resulted in the establishment of new enterprises with a large scale, a high number of machines, and huge investments.

The number of packaging enterprises with sales of over $30 million is on the rise, while the number of enterprises with revenue of $5 million a year has soared in recent years. 

However, most of the 2,000 plastic packaging enterprises are small scale.

A report from Thien Viet Securities found that the plastic packaging industry maintained gross profit margin of 15 percent in 2017, but risks were in the high debt proportions. 

In 2017, Vietnamese enterprises all had a high debt ratio, with a short-term debt ratio of 70 percent and long-term debt ratio of 30 percent on average.

Most Vietnamese small plastic packaging enterprises have poor manufacturing tools which cannot satisfy high requirements from large consumer goods manufacturers and people’s consumption needs. 

Market value has been increasing, but only foreign invested enterprises have received benefits.

In such circumstances, M&As are is expected to be a reasonable method to survive. The director of a plastics company said M&As would be a good way to realize investments, but are a threat to companies continuing to follow the old way of operating.

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Nam Bui