SINGAPORE (Feb 7): Dye manufacturer Matex International has had a colourful history so far. For a brief period of time, it was one of Singapore’s fastest-growing companies as its operations in China grew rapidly. Annual turnover at one point hit more than $100 million.
Yet, its fortune saw a quick reversal. A series of environmental protection laws slammed the brakes on the company’s growth and its key production plant suffered from stoppages.
First, the factory was forced to relocate and, a few years later, the company was forced to comply with an industry-wide requirement to install new equipment for the sake of safety. Matex soon lost its growth momentum, sales collapsed and the company sank into the red.
However, rather than bemoan about the bad hand dealt to him, Alex Tan Peng Kee, matex’s CEO and managing director, is using the lull to ramp up on R&D. And having created a range of products that is said to be more environmentally-friendly, Tan is convinced that the company should be on the cusp of recovery soon although he stops short of promising Matex will achieve a turnaround this fiscal year.
That is because new equipment would have to be fully installed in the first quarter after which production can be ramped up gradually. More importantly, Matex needs to win back former clients and find new ones.
“We need to bring back the customers first,” says Tan, in an interview with The Edge Singapore, “so when everything is completed and normal production resumes, we should be able to grow again,” says Tan.
To fuel the next stage of growth, Tan plans to raise funds for the purchase of raw materials and other working capital requirements, via a mixture of debt and equity. “We are focused on going back to the operation,” he says.
For the six months ended June 30, 2019, the company reported revenue of $19.7 million, down 22% y-o-y. Losses in the same period widened to $2.6 million, from $1.9 million a year ago. Not surprisingly, Matex’s share price has not been performing. Year to date, it is down 27% to close at 0.8 cent on Feb 5. At this price, it is a fraction of the company’s book value of 7.75 cents per share as at June 30, 2019, down from 8.84 cents as at Dec 31, 2018.
Tough officials and competitors
Matex was founded back in 1989 and listed in 2004. It started operating in Pudong, Shanghai as far back as 1993, just when China was embarking on market reforms. According to Tan, Matex introduced new technologies that no other manufacturers had and was able to grow rapidly. However,its competitors soon caught up. Tan claims they had sent people to work in his factory in cognito to spy on its operations and trade secrets.
China’s rapid urbanisation helped create a growing market for all manners of products and services. Unfortunately, it also caused disruption to Matex too. Just before 2000, the company was forced to uproot from Pudong to Taixing, nearly 300 km further inland from Shanghai, so Pudong could be redeveloped into the bustling financial district it is now known for.
Although Matex received some compensation, this was not sufficient to fully offset the cost of buying new land and building a new plant. “The local officials were very good at bargaining,” says Tan.
To make matters worse, Matex’s production was disrupted by the move. According to Tan, the land in Taixing was acquired in 2004 but as time was needed for the shift and to build the new plant from ground up, it would be four years later in 2008 before the new plant was ready.
During that period, Matex was forced to outsource its outstanding contracts to other companies and was forced to transfer its proprietary technologies to them. Tan also blames these other companies for poaching Matex’s customers. “They competed with us and took away our customers,” says Tan.
To be sure, Matex had other facilities in Malaysia and Vietnam, but these were dwarfed by its key production base in China which is the source of its raw materials and buyers.
In 2011, Matex was finally ready to ramp up production in its new plant at Taixing. In FY2014, the company generated revenue of $104.8 million, up by more than 50% from $69.7 million recorded in the FY2013, supported by sales to new customers. Earnings in the same period surged from $0.2 million to $2.7 million.
But little did Tan expect external factors to derail Matex’s momentum again. Facing worsening pollution, the Chinese government in 2015 forced chemical and manufacturing companies to switch from coal to gas. Matex’s coal-powered spray tower — an essential part of the production process — had to be shut down more for more than a year.
In FY2015, Matex’s revenue dropped to $92 million as the company was forced to compete with lower prices, and reversed into a loss of $1.6 million, from earnings of $2.7 million the year earlier.
Spate of accidents
But just when Tan thought Matex could get back on its feet, there was more bad news. Due to a spate of serious industrial accidents in China – including a huge chemical explosion and fire in Tianjin – the Chinese government mandated that all factories computerise their control systems in an effort to minimise bad press.
To make matters worse, there were not that many contractors who could provide such retrofitting services. Taking advantage of the burgeoning demand, the contractors jacked up their prices and insisted on cash payments with no credit terms — even before they send their engineers over for an assessment.
At its peak in 2014, Matex produced around 15,000 metric tonnes of dye. Due to the production disruptions, output dropped to 7,000 tonnes in 2018, and to a new low of some 5,000 tonnes for 2019, Tan estimates. He admits that at times, he was angry with the hand he was dealt with. Nevertheless, Tan believes the worst is over.
Matex has been using the downtime to innovate and create new products. It intensified its R&D efforts to create a range of dye that’s more environmentally-friendly. Matex’s dyes, for example, can be applied at a lower temperature and require less water.
"Less water, shorter time, and less money wasted," he quips.
The emphasis on environmentally-friendly products is coming from top-tier customers such as Uniqlo and H&M, which insist their suppliers meet environmental standards.
Having suffered through the years, Tan is optimistic his business can improve henceforth. Due to tighter environmental laws, no new licences have been awarded to new dye makers. Local governments are also reluctant to award new sites for existing dye makers to expand.
“There’s no new licence and no new land for expansion. Yet, the market is still growing. The textile industry is here to stay. Our licence has become very, very valuable,” says Tan.
In addition, Yeo says Matex has only concentrated on growing the textile market. The market for dye for leather goods is equally significant and has greater potential to be tapped. “We are slowly catching up, we are looking forward to a much better year next year,” says Tan.
