Dynea Pakistan Limited (PSX: DYNO) was established as a public limited company in 1982 under the Companies Act of 1913 (now the Companies Act of 2017). It has two production plants; one is located in Hub in Balochistan and the other is located in Gadoon, Khyber Pakhtunkhwa.

Dynea Pakistan mainly produces and sells formaldehyde, urea/melamine formaldehyde, aminoplast compounds and melamine glazing powder.

The affiliated company of AICA ASIA PACIFIC PTE LTD and DYNO owns nearly 25% of the company's shares. It is a regional leader in the development and provision of high-performance adhesives and surface treatment solutions for woodworking, other industrial and retail applications, and is headquartered in Singapore. Individuals hold more than 29% of DYNO's shares, while foreign investors hold nearly 26% of the shares. Mutual funds and joint-stock companies hold approximately 11% and 7% of the shares, respectively. Directors, CEOs, their spouses and minor children only hold 0.03%.

Over the years, Dynea Pakistan's revenue has been growing at different rates, but in FY2015, it experienced a negative growth rate of close to 12%. Profit margins have been increasing since FY 2014; they peaked between FY 2017 and FY 2018, and then declined in FY 2019.

The reason for the negative growth in revenue in FY2015 was the decline in sales prices. In FY2015, the absolute number of cost of sales was lower than in FY2014; the revenue was passed on to consumers, resulting in a decrease in revenue. However, as a percentage of revenue, manufacturing costs have increased between different periods. However, the company was able to increase gross profit margin and operating profit margin due to operating efficiency reflected by lower distribution costs. Due to the substantial increase in long-term financing, the net profit margin has dropped slightly, and financing costs have almost doubled.

In FY2016, industry competition was fierce and there was overcapacity. The company's revenue increased by more than 1%. Due to excessive competition, the sales of the resin division particularly declined, while the income of the amino plastic division increased by 3.57% due to increased production efficiency and output. The decrease in the percentage and absolute value of cost of sales to revenue has led to a significant increase in gross profit margin. "Other income" and financial costs have dropped significantly. "Other income" declined due to net exchange losses, while financial costs were reduced due to the reduction in long-term financing and short-term financing.

In fiscal 2017, the company's revenue growth rate improved slightly to 3.3%. The previous record was 1%. Among them, the resin department made a significant contribution, due to the increase in sales, its revenue increased by nearly 14%. Due to continuous efforts to improve production efficiency, profit margins improved during the period. The share of cost of sales in revenue further declined year-on-year, from 83% in FY2016 to 81% in FY2017. The return of other income to the previous level and the further decline in financial costs also provided some support for the net profit margin. The increase in “other income” is due to the interest earned on the PLS account, while the lower interest paid for long-term and short-term financing results in lower financing costs.

Revenue growth in FY2018 was as high as 55%-the highest to date. The revenue of the resin division and the amino plastic division increased by 74% and 35%, respectively. In addition to continuous efforts to improve operational efficiency, the company has also expanded the production capacity of the Gadoon plant. In addition, it has added a "glass compound" to their product portfolio, which is a new product. A slight decrease in the share of cost of sales in revenue was observed, which slightly reduced gross profit margin. Although financing costs accounted for less than 1% of net income, in absolute terms, it has increased significantly due to the price increase of short-term and long-term financing.

Although revenue has grown at a considerable rate of 33%, manufacturing costs have increased significantly, consuming more than 86% of revenue compared with 82% last year. Among them, salaries, wages and other benefits, "indirect materials", and fuel and electricity show the greatest tilt. Due to long-term and short-term financing, financial costs also jumped from 29 million rupees in FY2018 to 76 million rupees in FY2019. As a result, the overall profit margin has fallen.

Semi-annual performance and future outlook

In the six months ending FY20, revenue fell nearly 5% year-on-year. The resin department’s income is particularly low. This is the result of a general slowdown in the economy, which is characterized by weaker business activities, high inflation and high interest rates. In addition, many resin users are manufacturing their own resins. The GDP growth rate also dropped sharply from nearly 6% in fiscal year 2018 to 3.3% in fiscal year 2019. In addition, the unstable political environment and high energy prices have also brought difficulties to business activities.

In this challenging period, the company plans to focus on expanding its customer base, although it expects more testing time in the future. Due to overcapacity and a slowdown in the construction industry, the resin sector is expected to face pressure.

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