Pabrik Kertas Tjiwi Kimia and Indah Kiat Pulp & Paper, two companies under the Sinar Mas Group, are earmarking $400 million for investments this year, directed toward plant maintenance and increasing their paper production capacities.
Indah Kiat director Suhendra Wiriadinata said $300 million will come from Indah Kiat while the other $100 million will come from Tjiwi Kimia.
â€śIndah Kiat is allocating $250 million from its capital expenditure to build paper machine 6 [PM6] and another $50 million will be for maintenance. The fund from Tjiwi Kimiaâ€™s capital expenditure would be to complete the construction of PM13,â€ť Suhendra said on Tuesday.
PM6 will have an annual production capacity of 530,000 tons of paper while PM13â€™s annual capacity will be 120,000 tons. PM6 is scheduled to be ready for operation next year while PM13 will be ready to produce at half its installed capacity this July.
â€śThe demand for paper in the Asian market continues to grow and therefore needs to be anticipated,â€ť said Suhendra, who is also a Tjiwi Kimia director.
The current paper production capacity for the companies is at an annual 1.1 million tons. Besides producing paper, Indah Kiat also has a pulp factory producing 2.3 million tons a year and 1.6 million tons of packaging paper annually. Tjiwi Kimia has a stationary paper production capacity of 320,000 tons per year and 80,000 tons per year of packaging paper.
The capital expenditure from both companies will come from internal cash and bank loans, at a ratio of 50:50, and the companies are currently probing loans from two state banks, Suhendra said without elaborating.
He said Tjiwi Kimia is targeting a 5 percent to 10 percent growth in sales this year to $1.5 billion, but he was reluctant to provide an estimate for the companyâ€™s net profit this year.
Indah Kiatâ€™s sales, he said, were predicted to remain stable this year, matching last yearâ€™s $2.5 billion.
In the first quarter of 2012, Tjiwi Kimia saw a 2 percent drop in revenues to $336 million while net profit fell 1.8 percent to $16.2 million. Indah Kiat saw revenues drop 4 percent to $616 million in the same quarter while posting a $5.25 million net profit compared to the net loss of $11.79 million in the previous quarter.
As of March, Tjiwi Kimiaâ€™s sales rose to 236,000 tons from the previous quarterâ€™s 234,000 tons, stationery paper sales rose from 47,000 tons to 51,000 tons, package paper sales went down from 18,000 tons to 16,000 tons, he said.
Indah Kiatâ€™s pulp sales rose from 382,000 tons to 389,000 tons, its paper sales rose from 204,000 tons to 246,000 tons and packaging papers rose from 318,000 tons to 324,000 tons.
Suresh Kilam, a director of Tjiwi Kimia, said the prospect of the paper business in the global market was bright. He said that although demand was dropping in the United States, Asian demand was growing by about 3.2 percent.
â€śGrowth in Asia indeed slowed from the previous 6 to 7 percent, but we can still make use of the current growth. Even more so since Japan is short some 3.5 million tons in paper supply because several factories had to close down following last yearâ€™s tsunami disaster,â€ť he said.
He said 59 percent of the companyâ€™s sales were from exports, with 65 percent of exports going to Asia, 10 percent to the United States, 9 percent to Europe, 13 percent to the Middle East and Africa and 3 percent to Australia.
A shareholders annual general meeting of Tjiwi Kimia decided on a cash dividend of $3.4 million, or Rp 25 per share. The sum was about 5 percent of last yearâ€™s net profit. The distribution of the dividends will be announced in the next one or two months.
Indah Kiat is not in a position to provide dividends because it still has a deficit that as of March stood at $166 million.
â€śWe are trying to eliminate the deficit by pushing for better financial performance,â€ť Suhendra said.