Texmaco's expansion hailed as boon to growth

Texmaco's expansion hailed as boon to growth

JAKARTA (JP): The Indonesian Textile Association's projection
for the textile industry's diminishing capacity to meet export
demand bodes well with the Texmaco-Polysindo group's huge
expansion, securities analysts said.

"The textile industry can survive if it is more progressive in
using technology and in improving its economies of scale," Phua
Kok Kim of PT HSBC Securities Indonesia told The Jakarta Post.

Benny Sutrisno, the secretary general, and Chamroel Djafri, an
adviser to the association, cautioned last week that Indonesia's
textile export capacity had fallen 10 percent over the last two
years.

"Because manufacturing capacity has not grown as fast as the
expansion of the domestic market, the volume of exportable
textiles and garments has consequently declined," Djafri said.

Djafri said the current national capacity of 8.5 billion
meters of fabric may be enough to meet only domestic demand by
the year 2000.

However, the Polysindo Group seems to have anticipated well
the trend, as is clear from the expansion it started in 1994.

Phua said on Monday the textile industry's future would remain
positive for large companies like Polysindo because the group was
rapidly expanding and diversifying production and using high
technology.

Polysindo's polyester chip unit in Krawang, West Java, started
trial production this month with a designated capacity of 330,400
tons a year. That will soon be followed by another expanded unit
which will increase its polyester staple fiber capacity to
187,200 tons.

Its purified terephthalic acid (PTA) also in Kerawang will
come on stream early next year with an annual capacity of 340,000
tons. This new facility will feed the polyester chip plant. Both
the polyester chip and PTA plants use Eastman Kodak processing
technology.

Meanwhile, PT Texmaco Jaya, which is 80 percent owned by
Polysindo, is increasing its weaving capacity from 60 million to
97 million yards and its finishing capacity from 108 million to
228 million yards.

"On a big business scale large textile companies can obtain
capital more easily," Phua added.

An HG Asia securities' analyst agreed the key to boosting the
textile industry's performance was capacity expansion and
technological enhancement.

He said textile companies had to focus more on their target
markets.

Hanafi Wongso of PT BZW Niaga Securities agreed, suggesting
that textile companies, besides upgrading products, had to expand
their production capacity to benefit from sales volume.

"With more players coming into the market, they can no longer
expect significant price rises. So they should increase sales
volume to maintain earning growth," Hanafi added.

Standard & Poor's rating agency saw the progressive
integration of the Polysindo's group's petrochemical production
facilities with its well-established position in the polyester
fiber sector as a boon to its future earning prospects.

Standard & Poor's said in its latest review that the
Polysindo's downstream textile and fabric businesses would
further improve its production efficiency because it would have a
greater control over the cost and quality of raw materials.

All this, according to the American rating agency, would lead
to steady improvements in cash flow and enhanced earnings as the
group would retain the PTA profit margin.

Industry analysts foresee good marketing prospects for PTA as
there are now only two producers capable of meeting about 55.5
percent of domestic demand.

But as the textile industry would continue to expand,
industrial PTA needs would have to increase by between 15 and 20
percent annually within the next five yeas to fulfill the
domestic and export demands.

Polysindo, already the country's largest textile producer,
also has the advantage of having superior fabric design
capability to support extensive Indonesian and global marketing
networks.

The group creates its own print patterns and designs by using
sophisticated computer-aided design and computer aided
manufacturing equipment.

"Adding to this advantage is its closeness to the high-growth
Southeast Asian market," the rating agency said.

"We expect the shares of Polysindo and Texmaco Jaya to
outperform the market in the coming months," said Lippo
Securities in its latest market research report.

The Polysindo group is based on the integrated activities of
three companies. One of them, PT Polysindo Eka Perkasa, owns four
plants at Kaliwungu, Central Java, and Krawang, which manufacture
polyester chips, polyester staple fiber and PTA (to start next
year).

The second company is PT Texmaco Jaya, which is engaged in
textile weaving and finishing operations with an annual capacity
of 200 million yards.

The third is PT Texmaco Perkasa Engineering which is involved
in the manufacture of spinning, weaving and finishing machines,
computer numerically controlled machines, conventional lathes,
textile machinery spare parts as well as automotive components.

Both Texmaco Jaya and Polysindo are listed on the Jakarta and
Surabaya stock exchanges.

Texmaco Jaya's latest financial reports recorded a 43 percent
increase in revenue to Rp 221 billion (US$94 million) in the
first half of this year and a 45 percent rise in net earnings to
Rp 29 billion. The company's total assets as of June were Rp 662
billion.

Polysindo posted Rp 77 billion profit from total sales revenue
of Rp 654 billion. The net earnings represented a 28 percent
increase from the same period last year and sales revenue was 62
percent larger. Total assets as of June were Rp 2,900
billion. (alo/vin)