Great Wall Plastic Idustries Bhd (GWPI), Malaysia’s largest plastic packaging material producer, is poised for a metamorphosis: it is the target of a reverse takeover exercise.

A private company linked to Sarawak businessman-turned-politician Datuk Effendi Norwawi is proposing to inject into it government construction projects worth RM250 million

If the proposal gets all the relevant approvals, the company linked to Effendi and Efeida Effendi will end up with 48.6 per cent of the new-look GWPI. Besides new dominant shareholders, it will see a name change and a fresh dimension added to its business profile. The government project is expected to give a steady stream of earnings for a 30-year period

According to a GWPI circular to shareholders, the contract entails the design, development and construction of 10,000 units of teacher's quarters. The company awarded the project, Enfari Systembilt Sdn Bhd (ESSB), will receive an initial payment of RM125 million to be disbursed over 24 months. The remaining RM125 million will be paid in monthly instalments over a 30-year concession period calculated at an annual interest rate of 10 per cent

Effendi's entry into GWPI signals a new era for the company which the late Lim Song Leng bought into in 1971, after a failed venture in the tobacco business in Langkap, Perak. He built up GWPI, which was then located in Kepong, and it went public in 1995

GWPI is the only company to have its balloting exercise done twice. The first ballot was null and void owing to some irregularities at the issuing house.

Less than a year after the company went public, Datuk Lim Thian Kiat of the Multi-Purpose Group, via Sarawak Enterprise Bhd (SEB), took over GWPI from the Lim family. The shares apparently changed hands at a whopping RM13 each in 1996

T.K. Lim bought the company for its listing status as GWPI was `clean and lean', had a small paid-up capital, no subsidiaries and an established core business

Under intense speculation, GWPI shares hit more than RM18 during its heyday

Now, the only one from the Lim family left in GWPI is David K.L. Lim, the executive director. David, the second son of Lim Song Leng, started as a store keeper when his father bought into GWPI

How significant will the earnings from ESSB be for GWPI? `In the first two years there will be an earnings explosion as the company will get RM125 million,' says an analyst. `After the initial 24 months, the new-look GWPI will benefit from a steady but small flow of contributions from the teacher's quarters project.'

With Effendi at the helm, however, there may be more construction projects in store for the company. Now the Agriculture Minister, Effendi also has a string of other assets, like NTV7

The expansion of GWPI's business profile may do the company some good. Like many companies, GWPI suffered from the depreciating ringgit in 1998. As 60 per cent of the raw materials used in producing plastic materials are imported, the company's bottom line suffered. From a pre-tax profit of RM8.3 million for the financial year ending December 1997, the figure dwindled to RM927,000 in 1998

Last year the company's pre-tax profit improved to RM4.1 million on the back of a turnover of RM124.1 million. This year, GWPI is expected to harvest bumper profits

In the first quarter, the company recorded a pre-tax profit of RM2.5 million on the back of a turnover of RM36.4 million. On an annualised basis, GWPI should at least return a pre-tax profit of RM10 million. This is based on the capacity utilisation rate of GWPI so far

Executive director David Lim says the company has been running at 90 per cent capacity utilisation since early this year.

`We have a backlog of orders. Demand from both the domestic and overseas fronts have escalated with the improving economy. We are looking at expanding our capacity to cope with the orders.'

The bullish economy aside, Lim cites the company's ability to produce value-added plastic packaging material as a reason for the flood of orders. `We are one of the few plastic packaging producers which are into high-tech printing,' he says. `The high cost in setting up facilities to do high-tech printing serves as a natural barrier to new entries.' About 40 per cent of GWPI's products are exported.

Among the local customers are Malaysia Airlines, Unilever, the Nestle Group, and Malaysian Sugar Manufacturing

To cope with orders, the company has budgeted a capital expansion of RM30 million over the next one year to increase its capacity from the present 32,000 metric tonnes to 46,000 metric tonnes. The expansion will be funded by internally-generated funds and borrowings

The company is in the process of raising RM48 million from a rights issue but Lim says the proceeds will be used to reduce bank borrowings of RM54.4 million

He is confident that with further increases in capacity, GWPI would be able to stamp its authority as the leading plastic packaging producer in the region

Recalling GWPI's early days, Lim says that until the mid-1980s, plastic was not well received as a packaging material.

He recalls that his father practically slept in the Kepong factory in the first two years. But demand picked up and the company grew from a work force of 10 in 1971 (out of which two were Lim's children), GWPI now has more than 500 employees in its plant in Rawang. The company also has a dormitory to ensure that the factory runs round the clock. `Without a dormitory where workers and their families can stay, it is impossible to run the factory non-stop the whole year,' says Lim

Although new dominant shareholders will eventually come into GWPI, the plastic operations will remain as a vibrant part of the company - unless, of course, Effendi injects something more than just the teacher's quarters project