Apollo Asia Fund

Daibochi: the Christmastide AGM

In August & September, we wrote about the attempt at a squeeze-out privatisation of Daibochi by its parent, Scientex. The offer was pitched opportunistically low, after some quarters of severe disruption to Malaysian manufacturing, and lapsed in November. A few shareholders accepted the offer; three times as many thought it inadequate. Scientex managed to increase its stake from 61.9% to 71.9% of the ordinary shares and from 4.2% to 61.1% of the warrants, so we can congratulate it on its purchase while ruing the disruption and cost.

During the offer period, the interests of Scientex and minority shareholders diverged, since Scientex wished to increase its shareholding cheaply. (Brokers bidding for the role of 'Independent Advisor' obligingly raced to slash their forecasts & projected growth rates, and are now gradually revising them back up.)

Once the offer lapsed, I asked for a special investor briefing on the many changes, and to restore normal relations with the stewards of our company and with the controlling shareholder. An investor briefing was deemed unnecessary, and our next opportunity to ask questions will be at the AGM. I wrote on 16 Dec:

The AGM of Daibochi has been scheduled for the fifth day of Christmas, 29 Dec. It is a virtual meeting, with complicated procedures for registration, so it seems advisable for investors to make arrangements early - especially given the public holidays, and an early deadline for the advance submission of questions which will otherwise have to be submitted realtime through a query box. Last year Apollo Asia Fund registered early but was unable to participate in the AGM; regular readers will know that we had a similar experience at the Scientex investor briefing in September. Few shareholders accepted the lowball offer from Scientex, so it would be timely for the management and board of Daibochi to update us all on the long-term strategy of the independent company, a national and regional leader in the high-growth business of flexible packaging. The annual report falls short, and recent announcements and proposals beg many questions, yet our suggestion of a special investor briefing was deemed unnecessary; we've been told that the AGM is to be the next opportunity for discussion. Virtual meeting formats have required some trial and error around the world, and shareholders have been on a steep learning curve to make the most of the new arrangements and to minimise their idiosyncracies and pitfalls. We hope that most shareholders will participate online in Daibochi's AGM, both to gain practice and to assist in achieving the 'robust interactive discussion' now expected by the Securities Commission Malaysia (SC), whose updated codes and guidelines and AGM checklist may be found at https://www.sc.com.my/regulation/corporate-governance.

New guidance for AGMs in Malaysia

In addition to the excellent SC documents, which include thoughtful provisions for constructive engagement with investors, and for the conduct of virtual as well as physical meetings, Bursa Malaysia has this month published a Corporate Governance Guide which elaborates further on the improvements required. Sub-optimal past practice by many Malaysian companies has been carefully examined, and the many practical recommendations, if properly implemented, should result in better outcomes. The 2021 Malaysian Code on Corporate Governance, together with the SC's new Guidance and FAQs on the Conduct of General Meetings and Bursa's Guidance on Meaningful Relationship with Stakeholders, should significantly improve the quality of AGMs, while encouraging continuous engagement with investors throughout the year. Encouragingly, the SC is requesting ongoing investor feedback on the conduct of virtual general meetings.

Voting intentions

I've been given the proxy to vote Apollo Asia Fund's shares on the day, rather than voting in advance as we normally do; this is in order to gain experience of the new system, and because the rationale for some resolutions has yet to be explained. Our current voting intentions and rationale are as follows.

Initial questions

Questions during the meeting are apparently to be submitted by typing into a chat box, which can be slow and cumbersome; the new guidelines say that the questions must be visible to all participants, and that there must be provision to hear the voices of shareholders in subsequent two-way discussion, but the quality of Q&A in virtual meetings depends on having skilled personnel managing the question flow and channelling the discussion constructively, so we'll see how this works. It seems advisable to submit initial questions in advance, and hope they'll be covered in the Chairman's Statement and in a presentation by the Managing Director. These are the questions we were planning to submit:

- but there's a limit of 500 characters! so this is the cryptic list actually submitted:

At least we have a website on which we can post the plain-English version! I'm not very good at multitasking in virtual meetings, so hope for the assistance of other shareholders in ensuring that we get answers to the questions which seem useful, and have a constructive meeting which updates us properly on changes, current status and future outlook for the business.

Claire Barnes, 23 December 2021

Daibochi: conduct of the Christmastide AGM

Christmastide, for those of us who celebrate it, should be a period for rest and conversation, celebration and renewal. Too many Malaysians spent the last few weeks cleaning up a toxic slurry of mud, sewage and garbage after devastating floods, reflecting on deficiencies in preparedness and governance. At the New Year, many of us renew hopes of a better future, and resolutions to bring it about. I salute those involved in the clean-up, and working towards improvement.

Company investors have always had a right to hold directors and executives to account at the annual meeting. Increasingly, this is regarded as a duty. Conducting AGMs virtually presents both challenges and opportunities, so the Securities Commission has requested feedback, which we'll provide both through their online form and here. Since AGM minutes and full answers to shareholder questions are not yet available, nine days after the event, we'll comment first on the conduct of the meeting, and later on the content.

Before the meeting

Firstly, too much was left to be discussed at the meeting. 1. The annual report should have included full Management Discussion and Analysis of the year, and anticipated the most obvious questions on decisions taken (land purchase?) and past/future changes (huge disruptions, and new conflicts of interest?) 2. The AGM agenda is supposed to include the rationale for all proposals, so that they can be properly considered before the meeting, especially by those institutional and other investors who vote in advance. 3. In light of the major changes, investor requests for earlier briefing and discussion were appropriate and should not have been dismissed: the Malaysian Code on Corporate Governance calls for continuous communication between the company and stakeholders to facilitate mutual understanding (MCCG 12.0), and Bursa's CG Guide says that the board and management should put in place consistent communication with shareholders, not just at the time of the AGM, especially in relation to concerns and contentious issues (CGG-III, p.11).

Registration for the meeting required an unusual amount of to-and-fro interaction between the registrar, Tricor, and our subcustodian and back office; at some stage it was apparently explained that the written instructions for corporate representatives are not actually those applicable to institutions. We had been told in 2020 that we were locked out because of a mistake in the registration process, although registration had been confirmed and no problem advised - so we started the 2021 registration very early and verified completion; it took too many days. Recommendations: Tricor to liaise with the major local subcustodians on a process that is efficient for all parties, and reflect it accurately in the written instructions. Regulators might wish to ask registrars to report the number of investors who started the registration process for each meeting and did not eventually participate, and ask for causes to be investigated.

The proxy form by default suggested appointing an individual as proxy, "and/or failing him/her" an alternate (which might be left blank), "and/or failing him/her, the Chairman of the Meeting as my/our proxy to attend and vote for me/us...". Forms are often filled out in haste. Recommendation: there should be a prompt here to "delete as appropriate". The investing entity may wish to leave voting discretion with a named individual, to decide after listening to the discussion at the meeting; it may not wish to give discretion to the chairman in the event that its chosen representative suffers an IT glitch.

We wrote here earlier that we had to compress our advance questions to within a 500-character limit, but had apparently misunderstood. A kind shareholder explained that multiple questions can be placed with a limit of 500-characters each and a 30-second wait between each submission. Recommendation: the instructions could say so?

The same shareholder, a veteran of Malaysian general meetings, advised e-mailing copies of the advance questions to the company and its IR advisors, as questions submitted through platforms according to the instructions often go missing. IT problems?

During the meeting

The meeting was not interactive. The MCCG calls for members to exercise their rights to speak & vote at the meeting, with options for all modes of communication (MCCG 13.5, meeting guidance 2.13). Investors could only submit questions through a chatbox.

Questions posed by shareholders should be made visible to all meeting participants during the meeting itself. (MCCG 13.5) They were not.

As noted in the Bursa CGG, an independent moderator can help to ensure that all relevant questions are answered. There was no such independent moderator, and no effort to check if shareholders believed that the answers addressed the questions.

Inadequate answers prompted supplementary questions, which had to be typed in to the chatbox. The act of typing caused the livestream to freeze/hang temporarily - perhaps 10-40 seconds each time? causing part of each monologue to be missed.

Some questions were not addressed at all. After half an hour it was suddenly announced that time was up and that answers to other questions, and minutes, would be provided ASAP after the meeting. Voting was concluded quickly, and a 20 minute break with hold-music followed for counting - surprising with electronic voting? - this time could more usefully have been devoted to the discussion that had been promised, the dialogue required... The chairman then declared all resolutions passed, and the whole meeting was brought to an unsatisfying end just over an hour after it started.

Were all directors present? Only three of the six spoke; three took no visible part in the proceedings. (It is possible that they were introduced at the beginning: it was only a few minutes after the scheduled start time that the livestream came to life for me, with the chairman already speaking although yet to reach the main business of the meeting.) It would have been good to hear more substantively from the MD, at all from the CFO and the chairman of the audit committee, and to be able to gauge the response of individual directors to the major issues now facing the board.

We successfully cast Apollo Asia Fund's votes online, and were given a record of the votes cast. The record represented the individual who acted as proxy as being the member of the company - as if the shares belong to me personally. This is incorrect, and company registrars would normally be meticulous about such matters. Tricor please fix this, to provide accurate records.

A summary of the vote outcome had been flashed into the small box in the centre of the screen, but like the few other slides presented, it was too small to see. The subsequent announcement to Bursa revealed 77% voting turnout by the minorities, with a 68% majority of these voting against the proposed name change. (The board had promised to present its rationale at the AGM, but failed to address any of the objections.) There was also a significant protest vote against some of the directors. Scientex abstained only where required, on Related Party Transactions; all other items required only a simple majority, so the name change which noone could be bothered to justify went through because Scientex voted for it.

It would be a major change in international practice, but independent directors should really be elected by independent shareholders.

After the meeting

I had expected the promised answers and minutes to be forthcoming on the same day maybe? the day after? On day 3 (Friday), I attempted follow-up calls for the Q&A, which went unanswered, after repeated long periods on hold... then tried e-mail... and somebody must have been working because a Bursa announcement came after hours announcing that the company name had been changed already. On Monday we were informed by e-mail that answers and minutes would be "posted soonest", but that the focus is now on customers (that's good, but...?): the management team apparently remains too busy to comment on the opportunity provided by the fire which destroyed the factory of its closest competitor Tomypak on 19 December. So we keep checking the website. That has moved, without notice, but with episodes of downtime, to the clumsily named https://scientexpackagingak.com.my. On Wednesday a not-very-helpful e-mail with partial answers to a few questions arrived unsigned by a human, my request for clarification subsequently unanswered by "Scientex - SPAK IR ". Recommendation: companies should be required to post any information presented in slides, and the minutes of meetings, in announcements to Bursa and not just on company websites which can be error-prone and require manual checking. Presentation materials should be posted on the same day, and it should be the norm to provide the Q&A swiftly, as Bursa CGG recommends; the 30-business-day maximum is way too long in these eventful times.

One thing we have learned this week is that Daibochi (before changing its name to Scientex Packaging (Ayer Keroh) and unfathomably choosing the acronym SPAK) dispensed with the services of its long-standing investor relations consultants, Aquilas. I imagine that Aquilas would have advised against unilateral brand destruction. Aquilas worked with Daibochi during the decade in which the company built its multinational and regional clientele, listened to investor feedback (certainly not just ours! and we did not always agree), divested non-core assets, followed up introductions, and for several years in a row won the Excellence Award for Overall Corporate Governance and Performance, as documented in the 2019 annual report just after the Scientex takeover. I often have reservations about IR consultants but it has been a pleasure interacting with Aquilas. I hope that other companies now see manifold benefits in constructive investor engagement, and leap at the possibility that Aquilas may have capacity to take on new clients.

"The Chairman of the board should ensure that general meetings support meaningful engagement between the board, senior management and shareholders. The engagement should be interactive and include robust discussion on among others the company's financial and non-financial performance as well as the company's long-term strategies... all questions should receive a meaningful response." (MCCG 13.4) We have not been allowed any effective discussion or been fully satisfied with answers to questions for some time. However, since we were unable to hear 100% of the Q&A, and questions remained to be answered after the meeting, we'll wait for full info before commenting on that content, and any questions that remain, in the context of the high growth in flexible packaging expected by regional competitors, and the enhanced domestic opportunity. Malaysia's listed flexible packaging champion should step up, and chart a new course.

Claire Barnes, 7 January 2022

Daibochi: the month-long AGM Q&A

On 25th January, 27 days after the AGM, a 'summary of key matters discussed' was posted on the company's website - without any IR e-mail or Bursa announcement or flag on the homepage, where the most "recent news" is dated 21 Oct and relates to the extension of the Scientex offer without any mention of its subsequent rejection, the AGM, or anything to encourage customers such as the innovations and sustainability commitments on the regularly-refreshed homepage of its major regional competitor Amcor. The Amcor website today is a good example of modern communications for a multinational client base searching for constant improvement in packaging performance and sustainability. It also reminds us of the huge potential in the flexible packaging industry, and why the sector is so attractive to investors.

Daibochi, historically, was able to keep up. Its management used to be enthusiastic about its new products, new clients, and success in new markets. When Scientex bought in, we understood that it did so for the customer relationships and its role in innovation. Communication, surely, is essential to both?

I'll come back to why communication is important, and deficiencies in it concerning, but let's first look at the latest announcement of AGM Q&A. Personally I would not have represented this as matters discussed, because there was no channel for investor voices to be heard at the AGM, and no attempt was made to ask "does this answer your question?" - but it does reflect the written questions submitted (many of which could have been anticipated, and covered in regular reporting), and the responses now provided by the company (interesting parts summarised and paraphrased below in italics).

Some questions were answered:

Some were partially informative, for example:

Questions not effectively addressed include:

and these issues of ongoing concern:


While communication is lacking, the outlook should be bright. Flexible packaging has many advantages over other packaging options; logistical upheaval increases interest in long shelf-life and compact storage; and the drive towards more recyclable products confers major competitive advantages on the suppliers that can keep up. As noted above, efficient industry players should in the long term be able to adjust prices to specific cost inflation. Margins in the last two quarters have been less than half their normal level: off this low base, it seems reasonable to hope for a strong rebound in the quarters and years ahead.

As a manufacturer, Daibochi was already the Malaysian market leader, and increased its lead after taking over the number 3 company Mega. Competition in Malaysia was slashed after the factory of its number 2 competitor Tomypak burned down in December. The value of Tomypak shares now depends on hopes of an insurance payout and there is no commitment to resume production. So the company-formerly-known-as-Daibochi (which is easier to say than the new name) can expand into the vacated space, and regional competitors may not bother to target the Malaysian market which it now dominates. If the company can remain competitive in regional markets, the capital investment of the last couple of years should bear fruit.


When Scientex bought its controlling stake, the CEO talked of the listed Daibochi becoming the holding company for all group packaging interests, separating these from the very different business of property development. A larger Malaysian packaging champion with good IR and governance would be attractive to investors. (SCG Packaging, according to Bloomberg, is on a historic PE of 32 and a current PE of 26.) Terms of exchange would obviously have to be fair to all parties, and the plan comprehensive so that no conflicts of interest remain. The concept remains appealing, but realising it now would require greater candour with investors.

Recent events may suggest that Scientex no longer wishes to deal with minority shareholders, and had hoped to privatise (rather than just trying to increase its stake opportunistically) - but if that were the case, it could easily have succeeded by offering a reasonable takeover premium. Perhaps the situation was misjudged, and it will do so in future.

However, while a company remains listed, it has to be properly run. Expected standards of transparency and accountability are rising, and they contribute to the trust required for successful long-term relationships with multinational customers. Dealing with worried shareholders may be time-consuming. Open discussion at quarterly briefings is hardly onerous, results in well-informed shareholders, and the feedback may be helpful - surely a better option?

SCIPACK-Daibochi directors and managers, let us look forward to the Year of the Tiger. Let's raise sights and standards, and renew past regional ambitions.

Claire Barnes, 28 January 2022

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