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)