In a recent filing with the Ho Chi Minh Stock Exchange (HoSE), Nawaplastic Industries (Saraburi), a subsidiary of Thai conglomerate the Siam Cement Group (SCG), registered to purchase an additional 818,609 shares in the Binh Minh Plastic JSC (Stock code: BMP), one of Vietnam’s leading plastics firms. If successful, Saraburi would increase its holding in BMP to 50.89 per cent, or 41.66 million shares.

Illustrative photo. Vietnam's plastics and packaging industry has been on the radar of foreign investors for many years already. 

More than a month ago, Saraburi was one of two investors bidding for BMP shares from the State Capital Investment Corporation (SCIC). It spent around $102 million on acquiring more than 24 million, raising its stake in BMP to 49.91 per cent and cementing its position as its largest stakeholder.

“Vietnam’s plastics sector has seen fierce competition over recent years, in particular the active participation of foreign investors through merger and acquisition (M&A) activities,” said Mr. Khieu Duy Hai, Assistant Manager of Biinform at StoxPlus.

Deepening foothold

The latest deal in Vietnam’s plastics sector raises further concerns over the levels of foreign investment. About two months ago, An Phat Holdings, a member of the An Phat Group, disclosed that it had received investment of $15.6 million from South Korean asset management company Valuesystem. 

According to Mr. Dinh Xuan Cuong, CEO of An Phat Holdings, the funding is part of its plans to raise $200 million to support growth over the next few years.

Estimated to represent a stake of about 11 per cent, the investment is an initial step in An Phat’s capital arrangement plans to reach an ambitious revenue target of $1 billion by 2025. “The company will use the proceeds to expand its manufacturing capacity and invest in technology improvements,” Mr. Cuong told VET. 

“We will focus on expansion plans to build new factories, research and develop high-tech engineering plastics and high-quality large-size textile packages for use in the pharmaceutical and food industries, and continue to develop high-quality and environmentally-friendly products.”

Established in 2003, An Phat Holdings is now one of the leading plastics producers in the country. As of 2017, output stood at 8,000 tons of finished products per month, an increase of 52 per cent year-on-year and putting it among the largest manufacturers and exporters of thin-film plastic packaging in Southeast Asia. 

“We believe this investment will generate good profits and bolster confidence among South Korean investors, opening the door to overseas markets for Valuesystem,” said Valuesystem’s CEO Mr. Jung Hwanjong.

Vietnam’s plastics and packaging industry has been on the radar of other Asian investors from Thailand, South Korea and Japan in recent years. These Asian investors prefer striking up deals with local partners, which have resulted in an increase in M&As in the sector. 

Apart from Valuesystem, other long-term foreign investors have been looking to accelerate their holdings via M&A to solidify their foothold in Vietnam’s plastics sector.

Despite officially withdrawing from the Tien Phong Plastic JSC (NTP) early this year, Thailand’s SCG hasn’t ceased in its ambitions to increase its presence in Vietnam’s plastics market, by increasing its holding in BMP. 

According to industry insiders, the move is a capital preparation step to focus on fully acquiring the company. SCG officially broke ground in late February at the Long Son Petrochemicals project in southern Ba Ria Vung Tau province, with major output including essential materials for the plastics industry.

Over the past few years the conglomerate, indirectly through its subsidiaries, has aggressively beefed up its presence in Vietnam’s plastics industry by securing large stakes in State-owned enterprises and a major stake of 80 per cent in Tin Thanh Packaging (Batico), which is among the leading companies producing flexible plastic packaging in Vietnam. 

The pressure from the Thai giant is increasing, as it realizes its strategy of building a complete value chain in the country’s plastics sector. SCG Chairman Kan Trakulhoon told local media that it plans to allocate as much as $6 billion to strengthen its M&A activities in Vietnam by 2020.

Other foreign investors are consolidating their presence in the local flexible plastic packaging segment. Dongwon Systems successfully purchased a stake of more than 42 per cent in Tapack, also one of the largest flexible packaging firms in the country, and fully acquired Minh Viet Packaging (previously the in-house packaging plant of the Masan Group), while Japan’s Meiwa Pax bought up to 93 per cent of Saigon Plastic Packaging (Sapaco).

Room for growth

Vietnam’s plastics industry is estimated to grow handsomely in the 2011-2016 period, by an average of 10-15 per cent per year, according to figures from StoxPlus, and the plastics industry was valued at $12.6 billion in 2016, with more than 2,000 businesses. 

The industry is structured into four segments: plastic packaging, engineering plastics, household plastics, and highly technical plastics. Plastic packaging, including packaging for the food and beverage industries, accounts for the largest proportion, of 38 per cent, and attracts the most investment and interest.

Mr. Nguyen Hong Khanh, Head of the Analysis and Research Division at Sacombank Securities (SCBS), noted there are many factors that should see Vietnam’s plastics industry maintain high growth, as domestic consumption per capita is currently about 50 kg per year on average, which is some distance behind the world’s average of around 70 kg, and demand for plastics has been growing every year at more than 15 per cent. 

Rising demand means that local plastics companies have the opportunity to increase their market share by conducting investments in better technology and higher capacity. “The country’s plastic production has increased nearly four-fold over the last ten years, which shows that demand and consumption power are quite high,” Mr. Khanh said. 

“Growth in the plastics industry is closely related to soaring demand for civil and infrastructure construction. It also has a prosperous outlook thanks to the many free trade agreements Vietnam is or will soon be part of.”

According to market researcher Mordor Intelligence, the plastics packaging market accounted for 73.1 per cent of the industry’s total revenue, estimated at $4.1 billion in 2017, and the compound annual growth rate (CAGR) will stand at 5.89 per cent between 2017 and 2022. Vietnam’s packaging industry has seen rapid growth over recent years, primarily due to increasing demand for food and consumer goods. 

“The demand for plastic products and plastic packaging will continue to rise despite the global economic crisis,” said Mr. Cuong. Recognizing the harsh competition in the local plastics manufacturing industry, An Phat Holdings has shifted its goal to overseas markets. Specifically, its thin-film plastic packaging has been exported to the two major markets of Europe and Japan, bringing in substantial revenue.

Losing at home

Vietnamese plastics companies face fierce competition and the very real possibility of being acquired by their foreign peers. Many foreign plastics companies have invested in Vietnam to take advantage of land rental and taxation incentives and cheap raw material prices, among other matters, according to Mr. Pham Van Bac, Deputy Head of the Department of Building Materials at the Ministry of Construction. Foreign investors prefer acquiring local companies with a certain market share and solid performance to cut investment costs, he said.

Foreign companies with quality strategies are already making inroads into the Vietnamese market, putting a great deal of pressure on domestic production, and their experience and financial capacity will help them more easily benefit from the opportunities free trade agreements provide, Mr. Khanh noted. 

Vietnam’s plastics industry has been rather fragmented, with domestic firms, despite high production numbers, remaining limited in internal resources and being yet to mature. 

Apart from a few large enterprises holding market shares of 6-10 per cent, the industry is largely marked by small and scattered private enterprises. Some local companies with sizeable market shares still need large capital resources to prosper and none have created a self-contained production chain.

According to the Vietnam Plastics Association (VPA), Vietnam’s plastics industry currently spends up to $6.26 billion on importing 4.54 million tons of input materials, as local sources can only supply 900,000 tons. 

This, together with underdeveloped support industries, has led to a reduction in their competitiveness, and exporters scarcely take advantage of the tax incentives on offer. 

Seeing such shortcomings among Vietnamese plastics companies and the potential of the market, foreign investors will continually strengthen their foothold in the market and M&As offer something of a lifeline to local companies.

VN Economic Times