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Monday, December 9, 2013

Enquiry to Scientex Berhad (SCIENTX) 森德综合 on tariff hike

Our beloved Ah Jib Gor announced that electricity tariff will be up by average 15% in Peninsular Malaysia starting from Jan next year. 15% increase is no joke. I also wish that my salary will increase by 15% next year but I don't think it will happen :(

For households, I do think it will affect quite a lot. For a normal monthly usage of around RM200++, they need to fork out probably RM40 more every months. When the GST implementation comes on April 2015, probably will be RM50++ extra compared to now. Both tariff hike and GST charges will not affect those usage below 300kwh.

For manufacturing, the tariff hike will increase the operating cost as well, which in turn reduce the gross margin and net profit. I dropped an email to Scientex Berhad's investor relation to ask about the effect of the tariff hike one week ago and she replied me one day after. 

She mentioned that the electricity cost represents approximately 4% of the packaging operating cost and there will be some impact of the profit margin for the packaging section. 

So just make a rough estimation. 
Let's say the operating cost is RM100 and the electricity cost which is 4% of the operation cost will be RM4. 
A 15% increase on tariff will cause the electricity cost increases to RM4.6 while other costs remained. 
Thus, total operation cost will increase to RM100.6
So, (100.6-100)/100 = 0.6%
Thus, there will be a rough 0.6% increase in operation cost as a result of 15% tariff hike assumed the electricity usage remained same.

0.6% is small but not negligible since the gross profit margin of Scientex's packaging segment is only in the region of 6.2% based on 2013 annual report. The effect of tariff hike will probably reflected in Scientex FY2014Q3 and so on. Let's see what happen next. 

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