Another Man's Treasures

3 weeks ago . 5 min read
RY
Robert Yota
Writer at Forbes Indonesia
Another Man's Treasures
Jaehyuk Choi, President Director of PT Inocycle Technology Group. Photo courtesy of Inocycle

According to data from the Environment and Forestry Ministry (KLHK), there were 64 million tonnes of waste in Indonesia last year. Approximately 15% of it is plastic waste, and 3.2 million were thrown into the ocean. Plastic trash mismanagement is still a prevalent issue in the country. Only 10-15% of plastic waste is being recycled, with the remaining 60%-70% piling up in waste disposal sites (TPA) and 15%-30% becoming pollutants to the environment.

Publicly listed PT Inocycle Technology Group is a recycler of polyethylene terephthalate (PET) waste. PET is the most commonly used thermoplastic polymer for fiber, packaging, and bottles. The company currently operates five factories located in Tangerang, Karanganyar, Mojokerto, Salatiga, and Palembang, with a total production capacity of 37,600 tonnes with an average 85.4% utilization rate. Furthermore, the company employs 1,000 workers. Inocycle's main product is eco-friendly fiber, recycled polyester staple fiber (Re-PSF) produced from PET plastic waste. The fiber is used as fillings for pillows, jackets, dolls, and shoes. In addition, the company also manufactures non-woven products such as padding, needle, punch, geotextile, and thermal bonding that are used as raw materials for bed equipment, cars, garment, and construction. Inocycle also produces homeware products made from Re-PSF, such as pillows, blankets, carpets, quilt, and bed covers. Some of the company's most notable clients include car brands Toyota, Honda, Mitsubishi, Nissan, and Daihatsu as well as Matahari Department Store, King Koil, and Itochu, to name a few. Inocycle works closely with municipal governments for the collection process.

"Currently, Indonesia relies heavily on the traditional trash collection method, where there is no separation between recyclable and non-recyclable waste. Most of the trash usually end up in landfills or collected by scavengers, where it then goes through aggregate machines that separate recyclable and non-recyclable trash. In larger cities, there are many aggregate machines, so the awareness to recycle is quite strong. However, the same situation does not apply in smaller cities that lack these machines," explains Jaehyuk Choi, president director of PT Inocycle Technology.

The business potential is as big as the waste problem. Throughout 2019, Inocycle has recycled over 38 million kilograms of PET plastic waste into Re-PSF. This translates to a net sales of Rp 495 billion at the end of 2019, higher than Rp 396 billion in 2018. Meanwhile, Inocycle booked a net profit of Rp 23 billion, up from Rp 16 billion in 2018.

In this year's first semester, 72.28% of the company's revenue originates from the sale of fiber products, followed by non-woven products (17.32%), homeware products (10.21%), and others (0.19%). Inocycle also claims that it has a 50% market share for hollow conjugated Re-PSF fiber in Indonesia.

Alas, the coronavirus pandemic (COVID-19) that struck Indonesia starting in March this year has weakened the domestic economy, prompting people to halt consumptions unless necessary. With consumer spending declining, so did most companies' profitability. In the first half of 2020, Inocycle booked net sales of Rp 235.20 billion, which was only a slight decline compared to Rp 236.92 billion. However, the company's earnings did suffer, with the company recording an Rp 8.14 billion net loss instead of Rp 16.72 billion net profit at the end of last year's first semester.

"The net loss in 1H-2020 was mainly due to exchange rate loss with our foreign exchange-denominated loans. At this stage, it is still difficult to forecast our performance in subsequent quarters. However, we are seeing growing demand globally for recycled products even during the pandemic, and the company remains positive for the future," says Jaehyuk.

For the remainder of 2020, the company has also allocated $10 million in capital expenditures (capex) to construct its washing facility in Deli Serdang and Re-PSF as well as non-woven factories in Medan. Inocycle will use credit facilities from banks as well as the remaining funds it had collected from its IPO last year. Inocycle received Rp 142 billion from its IPO last year. According to Jae, 40% of the fund was spent on paying Inocycle's liabilities and 30% for working capital, with the remaining 30% stored in banks.

"For the construction of our Medan factories, we expect it to be completed at the end of this year. Meanwhile, the washing facility in Deli Serdang is already operational. Subsequently, we will begin the construction process for our Makassar site sometime in 2021," Jaehyuk says.

The washing facility in Deli Serdang can process up to 250 tonnes of PET waste every month. Meanwhile, the factories in Medan will produce between 300-500 tonnes of fiber and non-woven products per month. Also, Inocycle plans to build washing facilities in Lampung and Balikpapan once the Makassar site is finished. As a response to the COVID-19, one of the Inocycle's operational pivots to co-producing surgical masks.

"We've been producing surgical masks since the start of the pandemic in Indonesia, and have received certification from the Health Ministry. The demand for surgical masks has saturated by now, but we see this as a long-term investment. Our masks' production facility is running at nearly full capacity and is contributing quite significantly to our top-line," says Jaehyuk.

Moving forward, Jaehyuk is optimistic about the recycled product industry's outlook despite the challenges imposed by the pandemic. According to recent research by US-based market research company Grand View Research, large corporations lean more towards integrating recyclable materials into its production or packaging. Companies such as Nestle are currently using 100% recyclable packaging, and Adidas is already manufacturing with 40% PET in its products. In addition, companies such as Unilever are already using 50% recycled packaging, and Danone has set a target to use 100% PET packaging by 2021. Grand View also estimates that the Re-PSF market will reach $39.3 billion by 2025, growing at a compound annual growth rate (CAGR) of 6.3%.

"In the future, I think a higher number of corporations will incorporate more recycled plastic fiber into its products or packaging as it is a way to contribute a good sustainable cause to the environment," says Jaehyuk.

RY
Written By
Robert Yota
Writer at Forbes Indonesia
Topics
Companies