Malaysia

Progressing Disposal of Non-Performing Loans

In Malaysia, the disposal of nonperforming loans is in progress. Since the Asian currency crisis, the Malaysian government has taken responsive actions to solve the financial problems through the creation of the CDRC (Corporate Debt Restructuring Committee), Danamodal, an organization for injecting government funds, and Danaharta, an organization for purchasing non-performing loans. Among these organizations, the CDRC closed its operations at the end of July 2002 because the disposal of non-performing loans inflated by the Asian financial crisis had finally seen the light at the end of the tunnel.

The ratio of non-performing loans (for the six months ending in March 2003) fell from 6.7% in the same month of the preceding year to 5.4%

Meanwhile, following the definite framework of reorganization into 10 domestic banking groups, the government formulated in March 2001 the "Financial Market Master Plan (2001-2010) and decided on the liberalization of the financial market by 2010. The government expects to open up the financial sector to qualified foreign capital in 2007.

In March 2005, Bank Negara, the central bank, announced in its 2004 Annual Report the proposed guideline about the integration and rationalization of investment banks. This is a second step in the financial reorganization.

The objective of this guideline is to stimulate the integration into one entity within the same group and strengthen the competitiveness. The guideline incorporates an increase in the ratio of foreign capital at investment banks.

Targeting at Knowledge-Intensive Type Economy

The Malaysian government has already announced its reasons for the conversion to knowledge-intensive type economy (knowledge economy). This is a movement to correct the labor-intensive type economic structure and find a new way into the future through the knowledge Industry by freely utilizing the IT and biotechnology.

The master plan places special emphasis on the improvement of R&D capabilities, especially the development of quality personnel. This is certainly the direction of the textile & apparel industry in the future.

TORAY GROUP

Changes by 'Diastrophism' in Textile Trade

The Toray Group in Malaysia has been working on the expansion of new ways of doing business by breaking down barriers between textiles and non-textiles.

With Penang, Malaysia, as its base, Toray has carried out its businesses in textiles such as polyester staple fiber and polyester/cotton blended woven fabrics as well as non-textiles such as films and resins. Penfabric Sdn. Berhad and Penfibre Sdn. Bhd. are responsible for the textile business.

Eiji Doi, Senior Director of Toray Industries, Inc. and Managing Director of Toray Industries (Malaysia) Sdn. Berhad is in command of the whole Toray Group operating in Malaysia. Doi announces the arrival of a new era by saying, "The age when we viewed the Malaysian business in terms of textiles only is over."

With the year 2013 as the target, the Toray Malaysia Group will increase the textile business by 20% from the current level and double the film & resin business. The Group has annual sales of 100 billion yen in view.

Since the entry into the quota-free age, textile trade has begun to move toward a considerable change. While the "China-Plus-One' wind is now blowing, Doi says, "It is imperative to set up a new system for making apparel and producing textiles," by taking the southwest Asian area into perspective. Doi considers that "We can even call this a 'diastrophism' rather than a change for the immediate future."

The following is a report on the recent trend and challenging tasks of the textile business in the Toray Malaysia Group.

Penfabric

Elimination of Overlapping Operations

Penfabric Sdn. Bhd. based in the State of Penang, Malaysia, operates spinning, weaving and dyeing & finishing on an integrated basis. Polyester/cotton woven fabrics are one of the priority businesses that Toray heralds as the "World's No.1 Business." The triangle consisting of Indonesia (Easterntex and Centex), Thailand (Luckytex) and Malaysia is a pattern of mutually supplementing relationships.

In Malaysia where personnel expenses are highest among these countries, it is remarkable that Penfabric has striven hard to produce even higher-value-added products.

According to Managing Director Katsumasa Nakano, the scale of its production and sales is 12 million yards. The breakdown is: piece dyeing, 9 million yards; printing, 1 million yards; and yarn dyeing, 2 million yards. The expected sales in the fiscal year ending in March 2006 are 19 billion yen.

In July 2003, Penfabric completed a drastic reorganization to integrate the former four group fabric firms into the single new Penfabric firm.

Penfabric accomplished the concentration of indirect divisions and the elimination of overlapping operations.

The next target is to rationalize operations through the concentration of buying and physical distribution. It is likely, however, that these streamlined operations will not be coming shortly because the businesses of the four former firms varied widely. Penfabric imports polyester staple fiber from Japan, spun yarn and gray fabrics from Indonesia and gray fabrics from Thailand.

At this time, the ratio of sophisticated products at the gray fabric phase achieved 26% against the target of 28% for 2005. Likewise, the same ratio at the processing phase reached 65%, exceeding the target of 60% for 2005.

At the end of last August, Penfabric installed the main equipment for its liquid ammonia facility. Test operation started in October. At the outset, production is 500,000 yard/month. The maximum capacity is 2 million yards.

Penfabric has also carried out efficient energy programs. In July 2004, the whole Toray Malaysia Group (dyeing, weaving and making of fiber, films and resins) operating in the Prai Industrial Park in Penang on the side of the Malay PeninsulaAA has switched their basic energy from oil to natural gas. This completed the transfer of energy at all group firms since Penfabric changed to natural gas in April 2004 ahead of others. The cost reduction effect was worth as much as 250 million yen in the fiscal year ending in March 2005.

Penfibre

Sophisticated PSF for Sewing Thread

Penfibre Sdn. Bhd. produces polyester staple fiber and polyester film in an integrated operation from polyester polymerization. Previously, its monthly production capacity of polyester staple fiber was 5,000 tons, but declined to 4,600 tons this year because of first priority given to the production of sophisticated special fiber. The expected sales in the fiscal year ending in March 2006 are 7 billion yen.

Polyester staple fiber has two types: semi-dull and super-bright. Since Penfibre has given priority to the production of super-bright type polyester staple fiber, the share taken by it in overall production has rapidly risen as follows: 77% in 2000; 87% in 2002; 91% in 2003; and 95% in 2004.

90% of its output is for export. Among export destinations, China with the share of half is by far the biggest, followed by the Philippines. Exports to Europe have also begun to increase.

The matter of great concern in and after 2002 has been the price trend of PTA (purified terephthalic acid) and MEG (monoethylene glycol), both being raw materials of polyester. Haruki Nakata, Managing Director of Penfibre says, "These prices have continued to an uptrend since 2002. Especially, when these high prices rose to even higher levels in October-December 2004, we had pains in finding the way how to reflect the cost rise on polyester fiber prices."

Penfibre is going to tide over the difficulty of soaring raw material costs through technological servicei for high-quality sewing thread and the improvement of quality with high-grade fiber as its weapon. Nakata also says, "Being quota-free does not change the total volume of textiles, but it changes the production area." The ease of over-concentration on China will lead to the expansion of the demand for apparel manufacturing in other areas like India, Indonesia and Vietnam and then the demand for sewing thread made of Penfibre's polyester fiber will develop in these areas as well.

TOYOBO GROUP

Perak Textile

Expansion of 10 Air-Jet Looms With 360cm Width

Perak Textile Sdn. Bhd., a spinning and weaving firm of the Toyobo Group, has disclosed its expansion plan. Since its establishment in 1974, Perak has owned 26,994 spindles for spinning equipment and 252 looms. Its monthly weaving capacity is 1.2 million meters.

In the first half of 2005, operations were running at full capacity and the business was smooth with small stocks. Even so, the customer's request for price reductions became intensified and sales were 4% lower than the same period of the preceding year. By sales area, Europe was up 18%, but all other areas were down: the U.S., down 1%; China, down 25%; Japan, down 18%; and Malaysia, down 32%. Europe was the engine of growth. Shipment of non-apparel applications to Europe is favorable.

Despite intensified requests for lower prices in the first half, sales prices have rebounded since June. Consequently, the profit rate is in the process of recovery. The remaining 24 shuttle looms are still working. Perak Textile plans to scrap these looms eventually, but it has not decided the time schedule. In the second half of 2005, sales to the U.S. with low profit rates have fallen, while sales to Europe are increasing.

This is the background to Perak's decision to increase looms. It introduced 10 air-jet looms with 360cm width in last September and began to operate. Perak Textile will also make expansions in 2006 on the planned basis. Its detail is not clear at this time.