SCG Packaging Public Company Limited (5Y7A.F) Earnings Call Transcript & Summary

Good afternoon, distinguished participants. It is with great pleasure that we welcome you again for the first analyst conference of the year. Today, we will cover the performance of the fourth quarter and also for the full year of 2025. My name is Sornnarin Bangkedphol from the IR team. I will be your host on this afternoon session. We will begin with the presentation by the management, and we will have the Q&A session right after. Please allow me to introduce and hand over the floor to the SCGP CEO, Khun Wichan Jitpukdee; and SCGP CFO, Khun Danaidej Ketsuwan. Thank you.

Good afternoon. [Foreign Language] Times flies so fast. We meet again for the first analyst conference for the year 2026 and the results of our fourth quarter of last year 2025 and the whole year of 2025. We are in the era of we call the geopolitical instabilities, political transition, trade and tariff. Even that situation happened, SCGP, beyond the strategy, SCGP also focused on the flexibility and agility. So that will be the business going up. We also focus on the cash management. That's going to be the vehicle to build the business going further. And last but not least, we also try to grow the business by design the business model getting to customer and closer to the consumer. That the strategy add up on this era of the situation. With that, may I start with the consolidated key financial of last year. Last year, we have ended with the year with the sales revenue THB 124 billion, which reduced 6% year-on-year. The reason for the revenue on sales reduced because of the decline in the selling price reduced 8% year-on-year. That's the big portion. However, the sales volume also increased 4% that reduced the impact from the selling price. With that, we ended last year with EBITDA THB 17 billion, which improved 7% year-on-year and EBITDA margin of 14%. Net profit also the same that we closed the year with a net profit of THB 4 billion, which improved 10% year-on-year and still maintained at the 3% profit margin. In fact, 2024 is 2-point something close to 3%. This year, 3-point something which is higher than 3%, but we up it become 3% same as last year. The EBITDA and the net profit increased year-on-year, mainly the cost improvement and cost management, thanks for the artificial intelligence, machine learning and deep learning, also the generative AI. With that, we also get the RCP price reduced and also the energy costs also reduced. Next page is the business by segment. I may start with the integrated packaging business. Revenue from sale THB 95 billion, which also reduced 5% year-on-year. However, the EBITDA THB 15 billion also improved by 17% year-on-year with the EBITDA margin of 16%. The integrated packaging business, very strong domestic demand. Beginning of last year, I mean, first half of last year, export to China had been reduced, and we did change the strategy to decoupling from export to China to focus on the domestic in Southeast Asia, Thai, Vietnam, Indonesia and the Philippines that introduced us to improve the domestic sales volume a lot in our product category. On top of that, we also improved the production efficiency and that enhanced the profitability under the price pressure. For the fibrous business, we can see that the revenue from sale of THB 25 billion, which reduced 8% year-on-year also the same mainly from the selling price reduced. The EBITDA ending with THB 1.8 billion, which reduced 49% and the EBITDA margin also reduced down to 7%. This is because of the mainly soft on the selling price of the fibrous business. In terms of the business portfolio in year 2025, start from the left side, revenue from sales by the business unit. We see that last year, the consumer packaging business combined of 46%, which almost nearly half -- this is a very good movement on that. In this, the fiber packaging, I mean, box has been improved from 24% to 25%, even we get the MYPAK consolidation in early December. And we wish that this will going further and strengthen the business in Indonesia. For the packaging paper on the graph on the left-hand side, which account for 38%, still the same in terms of the business unit. On the right-hand side, revenue from sale by end destination, we see that in ASEAN still at 35%, almost maintained the same figure. But the point that we see on the left side of the right-hand side graph that from Thailand, revenues from sale increased from 42% to 44%, thanks for the foreign direct investment to Thailand, especially those who come from China. In a bit further details that like electronic and electrical appliance that invest a lot. So, like Midea, Hisense and TCL, things like that, though the demand of the packaging has been improved. So, that's why in Thailand this year, we improved a lot from those FDI. This year, for the less of the ROW meaning export, in the past time, we report only China and U.S. export. This year, we add India. In 2025, the export to China down to 4%. It used to be 8% that we lose something from China. The U.S. export still the same at 4%. This year, we separate India to be a figure here. India, South Asia, we export to India at 3%. The reason that we moved India to be more visibility because of this year, SCGP established sales representative office in India. And with that, we also find the opportunity to invest in the downstream packaging in India, which is the strategy for midterm and long term. So, investing in the developing countries, especially in the packaging, will give the value in the near future. In terms of the key performance index, this year. Just something like that we target last year EBITDA THB 18 billion. This saw THB 17.2 billion, almost close. Even last year, the situation very tough, geopolitical instability, as I mentioned, political transition, trade and tariff. So sometimes confusing, but we still maintain this high portion of the EBITDA. In terms of the operational excellence and supply chain excellence, we can do the cost THB 882 million. With this THB 882 million, THB 260 million is from artificial intelligence, machine learning and deep learning alone, THB 200 million. So this is a big portion. Thank for the team, thanks for all the technology that we can do optimization and allocation. In terms of our solution, last year, we can achieve 24% and this will be more and more because of the made-to-order product like the packaging, the customer stickiness are quite very sticky to this, too sticky because of we design all the solution to serve all the customer, and this will bring us to what we call the multinational company in very near future. In terms of the ESG and circular economy, we put up the target of the alternative fuel 39% we achieved 38%, almost close because we run at full capacity or that's why this year, we do more modification of the coal boiler, three coal boiler this year will be modification to use more the biomass. That's the summary of the key performance indicator for the last year. In summary, for year 2025, in terms of our strategy growth, we closed the deal on December 9 last year, acquired 100% stake in the Go-Pak. And this will increase our integration level from 18% to 26%, which is really a substantial improvement, and we are very confident that this will improve the operation, not only the packaging, but improve the operation of the project. We also invest, joint venture with Howa 25% to produce the wet pet food packaging, and this will be export to Japan. In Duy Tan, we increased the ownership to 100%. This is ready for the restructure of the business in the future. Last but not least, we invest the machine for producing the syringe and the needle now on the process of testing. And hopefully, by the first quarter of this year, we will get the license to it. So, in the second quarter, we can contract to the customer for the selling. In terms of the operations, we see that Fajar performance has been improved in terms of EBITDA and net profit. With that, we grow domestic sales a lot in the Indonesia and thanks for the strategy that we lose from China. In terms of the energy mix, raw material and the interest cost reduction, that also top up on the reducing cost. The key of Fajar last year is about the cost reduction and the structure of doing the business. From the last month of 2025, we see also the selling price has been improved, so we can discuss on further. In terms of the cost saving, we can do cost saving across same Thai, Vietnam, Indo, Philippines. This also includes Malaysia also. We use our technology and machine learning that's already presented. And this year, we modify boiler from the box plant using the gasoline to biomass already finished. Next year, we do again for the coal boiler for three. So, that's a summary of the results, key performance indicators and also a summary of 2025. Next will be the business segment review by Khun Danaidej. Please come.

So, let's now look at the movement in the fourth quarter. Starting from the three macro indicators. On the left-hand side, we can see that the PMI, which is for the three big markets, all of them are above 50. It means that there will be -- continue to be some expansion in the global economy. So if you look at that, ASEAN and U.S. seem to be having the PMI level that is higher than China. China was still roughly about 50, but still over 50. In terms of the export value, we can see that in the ASEAN economies, Thailand and Vietnam and Indonesia, we can continue to see some growth in some of the markets. In some markets, we have seen some -- a little bit of slightly lower in the Q4. So it means there's a mixed result here. Overall, the ASEAN economy was still quite resilient in terms of the export as export market or export countries. In terms of CPI, also the trend in some countries are going up, and that's a result of more policies that is supportive of economic growth, and that would be driving also consumer spending. So that's some indicators of the good news. Next, we look at how the demand is doing in our major countries that we operate. First, we look at the Q-on-Q, you can see that it's in basically in Vietnam and Indonesia, there was a higher growth in terms of Q-on-Q. And that's because in these two economies, there's also a stock building and also preparation and purchase and manufacturing in support of the upcoming festive seasons, which is -- will occur in the first quarter of this year, which is in Vietnam, it's a Tet holidays and in Indonesia as Hari Raya. So, in Q4 of last year, all the manufacturing and all the business activity take place for the entire quarter, unlike in Thailand and in Philippines, where we see the drop in these manufacturing activities and the purchasing in -- towards the end of December. So the December -- as usual in the -- toward the end of December, the market was weaker. So in these two countries, we see a little bit of the stable or reduced demand. But when we look at year-on-year figures, we can see that in all of the countries that we operate, most of them has year-on-year growth in terms of demand. And that's propelled by the domestic demand growth for the pre-holiday stocking, the high season for tourism as well as the continued growth in the export of key products such as food-related, frozen food, processed food, for example. So these were driving the markets in terms of the growth in Q-on-Q and year-on-year. Some consumer discretionary segments like apparel, footwear, electronics were still doing also quite okay. So, with this, related to the packaging paper demand, which will continue to grow, especially in Vietnam and Indonesia. And also in the fourth quarter, the demand from China for packaging paper has also increased in terms of the importation, the production of some of the local mill in China cannot get the raw materials from the recycled pulp situation. So they purchase more of the import. And that shows in the statistics, which has reached a very high level. It's actually been increasing from July onwards in terms of the monthly importation from China. And in December, it was also -- in November and December, the figures was also higher compared to the previous months. For food service, there's a healthy demand for the QSR segment in Asia and ASEAN, although a little bit slow in the Thai market. Anyway, we face some competition from producers in China and in Indonesia for the European market. For the pulp segment, the price remains soft, both for dissolving price -- pulp price. But for the chemical pulp or the short fiber pulp, the price gradually increased a little bit in the last part of last quarter. So, with that, we look at our consolidated financials for the fourth quarter. Our revenue stays at THB 30.170 billion for the fourth quarter. That's a drop of 3% year-on-year. The volume from year-on-year is actually up, but the price factor is the key one that is resulting in the lower revenue. In terms of Q-on-Q, it is relatively stable, slightly down. Volume was up about 4%, but also price was also down for the same period. So that's why the revenue Q-on-Q was relatively the same. Looking into EBITDA of the fourth quarter, it's reached THB 4.5 billion, and that's up both year-on-year and Q-on-Q. Core EBITDA was THB 3.7 billion, and that's down from the last quarter, mainly from price factor, also foreign exchange and also from additional costs in terms of direct selling expenses. And that was also from the core profit to -- core EBITDA to net EBITDA, there was also a gain from MYPAK acquisition in Indonesia. And that's also reflected in our net profit, which is THB 1.2 billion for the fourth quarter, up both year-on-year and Q-on-Q. And that includes the extra profit -- extra onetime profit net of all the extra onetime expenses of about THB 400 million in this figure. The cost factor is also improving. That's part of the contribution despite the lower price, we have also lower cost. So that means our margin was -- that's offset the impact on our margin as well. So, next, I want to go into the -- by business unit. Integrated packaging Business, revenue was THB 23.64 billion. Year-on-year down by about 2%, and that's mainly from the selling price because in terms of volume, the volume actually went up. In terms of Q-on-Q for the IPB, revenue increased slightly, 1%. Polymer packaging revenue increased, and that's a result of increase in the production of consumption products for the pre-holiday stocking and for export. Medical and labware also rebound in Europe in the fourth quarter compared to the summer holidays in the third quarter. For fiber packaging, Q-on-Q, revenue slightly dropped and that's partially as a result of some of the flood-related issues in Southern Thailand and also in the North, but government stimulus policy also helped a little bit here. Vietnam and Indonesia was still quite healthy because of the preparation for the upcoming Tet and Hari Raya in the fourth quarter. For packaging paper, sales volume increased about 4%, but price also decreased by about 3%. And so EBITDA for Integrated packaging business is at THB 4.385 billion. That's an increase both year-on-year and Q-on-Q. Mainly the price was down year-on-year, but costs also down, but we also have this extra gain from the MYPAK M&P. Q-on-Q was also similar issues. So, from IPB, we go into more detail in the Fajar and Indonesia operation. If you look at the top chart, the bar chart, in terms of the volume, we have an increase in terms of Q-on-Q of the volume, both for the domestic and the export. Domestic also grow -- export also grow. Together, the volume grew about 16% Q-on-Q and 7% year-on-year. So that's a very healthy volume that we have. However, in terms of price, year-on-year is quite stable, but in terms of Q-on-Q, would drop slightly in terms of the IDR term by about 2%. And this is the combination -- the quarterly drop of about 2% from [ IDR 6 million to about IDR 5.9 million ] IDR per tonne is because of the low price in October. The price has been a bit lower until the bottom in about October, November and start to rebound already. So, at that point, the lowest was about [ IDR 5,800 million ] per kilogram. That was equivalent to about $345 per tonne. But the latest figures in December, as we closed December was up to about [ IDR 6,100 million ]. So that's about 6% increase or about $20 per tonne increase. And this increasing price trend actually continues into January into Q1. So we expect that in the first quarter, if you take the December latest price of [ IDR 6,100 million ], so that's a healthy increase from the figures in the fourth quarter. And this is the price factor that actually affect our EBITDA. If you look at the EBITDA on the bottom chart, our EBITDA from operation is slightly negative about THB 37 billion, and that's due to this average price of the quarter that was lower than the last quarter. But we have also have a onetime energy supply rearrangement figures of THB 64 billion. This recognition or change in condition of the contract of the supply of energy would result in the cost saving starting from January 2026 onward. That would help save about more than THB 35 million, let's say, about THB 35 million per month. And this onetime expense that we charged in December was about THB 120 million. So, within three to four months, that would cover and the benefit will be full scale after that. So, it means in 2026, we would have cost saving in terms of better EBITDA -- better energy cost by about THB 400 million per year. That's quite significant. Other things that we did in here was also the integration of MYPAK, which is for the box plant that we will help the integration with Fajar increased from 18% to 26%. That was already in place since December since we acquired MYPAK 100%. Another point is in terms of the customer. We -- in addition to our own captive market of box business, we also increased our portion of the what's called alliance customer or alliance partner to 44% from 34%. So this one are the customer who use primarily our Fajar products, and we have to grow our wallet share with them. And so we increased this portion to totally together with the captive part would be about 70% of our sales. So it means the true free market has been reduced to about 30%. So that's the three things we did in terms of vertical integration with the box -- new box plant, MYPAK, the increase in terms of our additional alliance and also the cost savings -- significant cost saving from the energy contract rearrangement. So that's for Fajar. Next would be on the fibrous business. The revenue from fibrous is THB 5.7 billion. That's about 2% year-on-year down, mainly also from price factor. For Q-on-Q, it was also 5% reduced Q-on-Q. The revenue from foodservice and paper and pulp, actually, all of them dropped. For the foodservice, it's mainly because of a little bit more subdued environment in Thailand in terms of the festivities with the countries going through the mourning period as well as some of the natural disaster like flooding. But the QSR in the other markets was still quite resilient. For specialty and paper, volume was up, but the price was down, so the total revenue was down. For pulp, there was a price drop both in terms of dissolving pulp and also in terms of the short fiber pulp but short fiber pulp price rebound towards the end of the quarter. So, with this, the EBITDA for fibrous business was THB 300 million. So that's down both year-on-year and Q-on-Q, mainly from price factor as well as the strong or the appreciation of the Thai baht. So, if you look at the proportion of the Fibers business volume, about 63% was for export. So the movement, the strengthening of the appreciation of Thai baht has a more pronounced effect for the fibrous business than for the integrated packaging business. And this has been a factor affecting them both year-on-year and Q-on-Q. Next will be on the financial review. We start with the reconciliation of our core profit and net profit. The core profit stands at THB 821 million. We have extra item in terms of gain from the M&P transaction in Indonesia of MYPAK, about THB 1.072 billion, but that was offset by onetime expenses such as the company restructuring, which about THB 183 million, and that's for the improvement of our workforce efficiency. For others of THB 482 million, that was the reversal of the deferred tax asset, mainly in Fajar and Dayasa in Indonesia, THB 380 million and also the onetime energy rearrangement that we talked about at Fajar, about THB 94 million. So that together means all the net gain from onetime would be about THB 400 million in the fourth quarter. In terms of our balance sheet, our net debt remained at about THB 52 billion. So that's a slight reduction from the year earlier. Debt to equity is still lower, now 0.96x and net debt to EBITDA is about 3x. And this is a reduction from last year as well as reduction from the peak in the middle of last year of about 3.7x. And this reduction is due to better EBITDA for the year. In terms of CapEx, last year was THB 9.7 billion. That's close to our estimate of THB 10 billion. About THB 5.4 billion is related to growth CapEx, which is MYPAK and also the acquisition of additional shares in Duy Tan together. For this year, 2026, the budget for the CapEx is also about THB 10 billion. And that will be for growth CapEx about THB 5.5 billion for the new expansion and also M&P and the remaining will be for the maintenance efficiency and cost savings. Our overall cost of debt was also reduced to 3.7% from 4.2%, and that's because of the reduction in this rate across the board and across all operations, not just in Thailand. And today, the Board of Directors has approved the proposed to the shareholders for a payout of THB 0.6 per share of dividend. That's equivalent to about 63% payout with a dividend yield of about 3%. And that will be proposed for the AGM is upcoming in March. THB 0.25 already paid as an interim dividend. So the remaining final payment of THB 0.35 will be paid in April if approved by the shareholders. So, that's a recap of the fourth quarter as well as the financial position. Next will be for Khun Wichan.

Next will be the business update. So, may I start with the sustainable packaging. Look back the emerging regulation that has been changing, especially in the abroad, but Thai still are lacking on that. The update is that in Vina Kraft Paper, which our subsidiary registered and approved as the recycler, meaning we have ability to extend that producer to brand owner. And the quota of brand owner, which is our customer is 11,000 tonnes last year. And also, we also kept the cost -- even this cost is not much, but we see that this is value we create for our customer. On top of that, last year 2025, our Go-Pak in U.K. also registration as the approved recycler. Last year, they could do -- they did a good job at 7,000 tonnes, and we kept the fee from recycler also. These two countries and these two companies play a vital role to put up SCGP to be a sustainable company. Just want to update JDA with the Origin Materials, the joint development agreement between SCGP and Origin have been finished. And then the technology there, we can convert. We can produce PET from the eucalyptus woodchip. However, the return on investment is not payback due to the price of the PET value chain right now. So we stopped -- we said we are not going for this project unless in the future, the price of the PET getting higher and then we invest on the convert the eucalyptus woodchip to be a PET making money or return on investment. On right hand side, we see that the circular operation in each sub business unit start from the fibrous business, pulp and paper. So, now we are using 99% of renewable material, which the product 100% recyclability. In terms of the fiber-based, I mean, box paper like that. So 93% of the recycled material content and the product also 100% recyclability. These two fibers and the fiber-based packaging play a vital role in terms of the recycle. Last but not least, for the polymer base. Now we start to use the 4% of the recycled material, which we plan to improve more. However, the recyclability of the polymer-based packaging reach up to 85%, which are on the road map to improve and increase the recyclability. In terms of the collaboration with the customer and the leadership position. So, first thing I would like to say that last year was one of the highest year that we do customer collaboration a lot. We established and we end up with the 15 memorandum of understanding. So, SCGP doesn't like to call MOU. Each MOU we call, for example, memorandum of reducing greenhouse gas, memorandum of development of new products, things like that. So this is -- we end up last year with a 15 collaboration. This is a good movement that doing the business in the future collaboration with the customer, especially on those projects will create the stickiness to the both sides. Second initiative, last year, we got so-called green label testing services for the Thailand Environmental Institute. This one, we are the first one who can test the green label as the government agency. This is a very good movement. And also last year, we get the AAA sustainable stock rating from SET ESG Rating for the three consecutive years. We also received the SET Award of Honor for the Best Innovative Company for four consecutive years. So, meaning every year, we have the best innovative product and project to show to the SET Thailand. We also received the best sustainability award from the award also that really important and make our asset leadership. On top of that, last year, three of us IR, CFO, and myself as CEO, received the IAA award for the listed company 2025. This award create, really empower in the past year, '22, '23, '24, we got outstanding and best. But last year 2025 is only year that three of us got the best IR, best CFO and best CEO, and thank you for working that for us. Looking back -- looking into the future, we see that the key performance indicator we call that this will be moving towards the transformative transformation. We have been doing a lot of transformation of doing the business, especially for people organization structure and the business model also. We set our four KPI almost the same as last year, but the figure has been changed. Profitability, we set up EBITDA this year, THB 18.3 billion and EBITDA margin should be more than 14%. It looks a bit not so high compared to last year. However, we see a lot of upside for this figure, especially for the Indonesia business. In terms of the efficiency, we also expect the cost reduction this year, THB 600 million. And also, we do the expansion project. We expect to have the expansion project this year, three projects with the consumer packaging improved from 46% to be 49%. And also, we will increase the alternative fuel from 38% to 40%, which the project under modification, will convert three coal boilers to use the biomass. That's all the update from everything in the fourth quarter of last year and the whole year of 2025.

And I think today, we already covered with the summarized and the performance of last year. If you have any questions, so you can add more or contact the IR team. And we would like to thank for the participants today for joining the virtual conference today and looking forward to seeing you again in the next quarter. Today, we would like to thank you and [Foreign Language].

Thank you very much. [Foreign Language]