KUALA LUMPUR: Seng Fong Holdings Bhd (SFHB) is taking steps toward using renewable energy sources in the coming months, including installing two biomass systems at its factory.
As part of the expansion plans, the new biomass system will lessen the company's reliance on fossil fuels by displacing diesel usage as a fuel source.
Managing director Er Hock Lai said SFHB factories require a large amount of diesel consumption to generate heat energy for its dryer systems.
"This has led to high diesel expenses, which impacts profitability.
"To reduce our diesel expenses, we intend to install two units of wood chip gasification hot air systems, which is a biomass system, to generate gas from wood chips as a fuel source for our dryer system, thus replacing the consumption of diesel as a fuel source.
"Nevertheless, our dryer system can continue to use diesel as a backup in the event of failure of the biomass system," he told The New Straits Times.
Er said the overall cost of purchasing and installing the two units of biomass system is estimated to be RM6.3 million, which will be fully paid by the proceeds of the company's initial public offering (IPO).
"In January 2022, the fabrication of our Biomass 1 and Biomass 2 systems has been completed, and arrangements are being made to deliver the biomass systems to our factory.
"We have made payments amounting to RM2.8 million as deposits for the biomass system, via internally generated funds, which the IPO proceeds upon receipt will replenish," Er said.
Er said that as biomass is a form of renewable energy, the generation of heat energy using the technology of the biomass system for future operations is in line with the company's environmental, social, and governance (ESG) initiatives to achieve environmental sustainability.
The installed capacity of the biomass systems at the SFHB factory will be 4.8 million kCal for Biomass 1 and 7.2 million kCal for Biomass 2, respectively.
Biomass 1 will be used to support the operations of Factory 1, while Biomass 2 will be used to support the operations of Factory 2 and Factory 3.
Er said the installation of the biomass system is aimed at achieving cost-saving measures by reducing overall diesel expenses while consuming the same amount of energy used by our dryer system.
Upon commissioning, which is slated to be by the third quarter (Q3) of this year, it is estimated to result in savings of approximately RM3.5 million per annum to SFHB's cost of sales (COS).
Apart from the biomass system, SFHB also plans to install two units of solar systems under the net energy metering (NEM) Scheme.
The move will enable the company to hedge against a future increase in electricity tariffs and, at the same time, receive incentives from the Malaysian Investment Development Authority (MIDA) in the form of a green investment tax allowance.
The solar system is expected to be fully commissioned by the second quarter (Q2) of Q22 and achieve cost savings of approximately RM2.6 million per year.
SFHB was listed on the main market of Bursa Malaysia today (7 July) with a target market capitalisation of RM389.2 million.
The company is raising RM68.1 million from the IPO.
SFHB shares were oversubscribed by 3.09 times, with a total of 3,968 applications for 106.04 million IPO shares with a value of RM79.53 million taken up by the Malaysian public.
For the Bumiputera public portion, 2,097 applications for 31.76 million shares were received, representing an oversubscription rate of 1.45 times.
For the remaining Malaysian public portion, 1,871 applications for 74.28 million shares were received, representing an oversubscription rate of 4.73 times.
Meanwhile, the 16.25 million shares available to the eligible directors and employees of SFHB and persons who have contributed to the company's success have also been fully subscribed.
Post-IPO, Er, who holds an indirect interest of 59.3 per cent in SFHB through his shareholdings of 77.2 per cent in Sumber Panji Sdn Bhd (SPSB), is the largest shareholder of the company.
SPSB holds a 59.30 per cent stake in SFHB.
SFHB is involved in the processing of cup lump into block rubber. The company also trades block rubber directly, sourced from international rubber traders and natural rubber processors under its trading segment.
The block rubber produced is sold directly to end-user customers, the majority of them are tyre manufacturers and also
international rubber traders.
TA Securities Holdings Bhd, in a note said SFHB intends to increase the total annual capacity by 16.9 per cent to 166,000 tonnes by FY23.
The increase in capacity is expected to be implemented by the second quarter (Q2) of 2022 for Factory 3 and Q2 2023 for Factory 2.
To note, SFHB does not experience any material impact from the rubber price volatility as the company can pass on the increase in cost to its customers.
Note that it is an industry practice to pass on the increase in cost to
customers via the increase in selling prices quoted based on the prevailing
market rates.
As such, the research firm noted that SFHB does not require to undertake other actions to mitigate the price fluctuation of rubber.
SFHB plans to ride on the domestic and regional automotive market boom.
Notably, approximately 70 per cent of global natural rubber is used for tyre manufacturing, hence the demand for block rubber as one of the main raw materials for tyre manufacturing is driven by the automotive industry.
Er said that with an increasing number of vehicles produced and sold and the replacement of worn-out tyres during vehicle maintenance, the company sees the demand for tyres increasing, which drives the rubber processing industry.