PETALING JAYA: EP Manufacturing Bhd (EPMB) is bent on diversification to reduce dependence on its bread and butter automotive parts manufacturing business.
The company is looking into real estate development, road construction, and more water concessions in Indonesia to safeguard its revenue stream.
EPMB executive chairman Hamidon Abdullah said the company’s initial water treatment concession in Kota Serang in Indonesia is scheduled for operation this month. He said the project will serve as a platform for the company to undertake more infrastructure jobs in the neighbouring country.
“The infrastructure jobs include housing, roads and water supply. We have been talking to the Indonesian authorities,” Hamidon told The Edge Financial Daily in a recent interview. Hamidon is also the executive chairman of Nadayu Properties Bhd.
Hamidon said EPMB’s 25 litre per second water treatment project in Kota Serang is expected to post its maiden contribution in the coming financial year ending Dec 31, 2013, adding that the water treatment plant will essentially supply clean water to mobile tankers which will distribute the water to rural areas where supply of clean water is scarce.
While it is now venturing into water concession, it is worth noting that EPMB is also a contract manufacturer of water meters for New York Stock Exchange-listed Elster Group.
EPMB’s diversification plans come at a time when the company’s core automotive component business, which accounts for 97% of revenue, is seeing falling sales due to external headwinds such as the earthquake and tsunami in Japan early last year.
The natural disasters have disrupted the global automotive component supply chain, according to analyst.
The latest filings by EPMB show that the automotive component division registered sales of RM395.48 million in the nine months ended Sept 30, 2011, a 10% decline from the RM440.75 million a year earlier.
On the whole, EPMB’s cumulative nine-month net profit still rose 78% to RM29.82 million from RM16.79 million a year earlier despite revenue falling 10% to RM408.24 million from RM455.35 million. Its bottom line was also helped by tax incentives during the period.
As at Sept 30, EPMB had cash of RM76.19 million against debt of RM200.35 million, translating into a net debt of RM124.16 million. Hamidon said EPMB may raise more long-term funds in the form of bonds, rights issue or bank loans to finance the company’s diversification plans.
“We believe in the company,” he said when asked on the company’s move to buy back its own shares. Hamidon said EPMB had bought back its shares as they are undervalued.
In the 3Q ended Sept 30, EPMB repurchased 468,400 shares on the open market at an average price of 84 sen each. The securities are held as Treasury shares, according to EPMB’s filings with Bursa Malaysia.
EPMB shares closed at 90 sen last Friday, valuing the company at RM149.4 million.
At 90 sen, EPMB shares were traded at a 46.4% discount to its latest reported net assets per share of RM1.68. In price-earnings ratio terms, the stock was transacted at about four times annualised FY11 earnings compared with a peer average of 15 times.
Analysts believe EPMB’s business model is strategic by virtue of its focus on the two key automotive players in Malaysia — Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd (Perodua), both of which contribute some 80% of EPMB’s revenue.
But they also believe EPMB’s reliance on these two automobile producers could pose a risk to EPMB’s earnings should rival component manufacturers secure a slice of the business from these two automotive players. It is worth noting that DRB-Hicom Bhd, which is in the process of taking over Proton, also manufactures automotive parts and components.
Nonetheless, analysts have said the broadly positive review for Perodua’s replacement Myvi augurs well for EPMB since the latter’s revenue per car set had quadrupled. This is in tandem with the greater upstream localisation policy by Perodua.
As the manufacturing bottleneck for the replacement Myvi normalises, analysts expect EPMB’s sales to improve as well. However, the immediate downside risk to EPMB’s performance may stem from a slowing economy and negative consumer sentiment which may impact automotive sales in the coming months.
EPMB’s automotive parts division has two manufacturing facilities — one in Shah Alam and one in Batang Kali. The two factories have built-up areas of 16,000 sq ft and 428,000 sq ft respectively. The Shah Alam plant is designated for plastic-based automotive components as well as water meters while the Batang Kali plant manufactures metal-based automotive parts.
EPMB has strategic collaborations with global automotive parts manufacturers including Germany’s Bosch Pty Ltd and Japan-based Koito Manufacturing Co Ltd.
EPMB’s Batang Kali facility sits on a 22.6-acre (9ha) tract which includes a vacant portion of 6.6 acres. Analysts believe the vacant tract can be used to accommodate the expansion of EPMB’s manufacturing operations in the future.
While its annual automotive component capacity for both factories has already reached some 90%, EPMB has no immediate plans to expand its existing capacity but will instead upgrade its existing production lines to boost effciency, said Hamidon. EPMB earmarks a yearly capital expenditure of between RM50 million and RM80 million.
EPMB, which also supplies components for Toyota vehicles in the Middle East, is also capitalising on its sub-vendors’ capacity to boost EPMB’s production capability by another 25%, according to Hamidon. This is by virtue of EPMB being the assembler for semi-finished products from these vendors, he said.
“We have the building blocks to spur EPMB’s growth,” said Hamidon who also indicated that the company’s automotive component order book could sustain earnings for the next three years. The order book, he said, is worth some RM500 million a year.
He also mentioned the possibility of EPMB acquiring associate stakes of some 30% in automotive parts suppliers in Indonesia to expand the company’s business.
The expansion to Indonesia is crucial to leverage Perodua’s foray into the neighbouring country, where the new Myvi model was rebadged as the Daihatsu Sirion.
Perodua undertook the first shipment of 500,000 vehicles to Indonesia last June, according to news reports. It was reported then that Perodua was assessing the feasibility of exporting its vehicles to Thailand and South Africa.
This article appeared in The Edge Financial Daily, February 8, 2012.
The company is looking into real estate development, road construction, and more water concessions in Indonesia to safeguard its revenue stream.
EPMB executive chairman Hamidon Abdullah said the company’s initial water treatment concession in Kota Serang in Indonesia is scheduled for operation this month. He said the project will serve as a platform for the company to undertake more infrastructure jobs in the neighbouring country.
“The infrastructure jobs include housing, roads and water supply. We have been talking to the Indonesian authorities,” Hamidon told The Edge Financial Daily in a recent interview. Hamidon is also the executive chairman of Nadayu Properties Bhd.
Hamidon said EPMB’s 25 litre per second water treatment project in Kota Serang is expected to post its maiden contribution in the coming financial year ending Dec 31, 2013, adding that the water treatment plant will essentially supply clean water to mobile tankers which will distribute the water to rural areas where supply of clean water is scarce.
While it is now venturing into water concession, it is worth noting that EPMB is also a contract manufacturer of water meters for New York Stock Exchange-listed Elster Group.
Hamidon said EPMB's initial water treatment concession in Kota Serang in Indonesia is scheduled for operation this month.
EPMB’s diversification plans come at a time when the company’s core automotive component business, which accounts for 97% of revenue, is seeing falling sales due to external headwinds such as the earthquake and tsunami in Japan early last year.
The natural disasters have disrupted the global automotive component supply chain, according to analyst.
The latest filings by EPMB show that the automotive component division registered sales of RM395.48 million in the nine months ended Sept 30, 2011, a 10% decline from the RM440.75 million a year earlier.
On the whole, EPMB’s cumulative nine-month net profit still rose 78% to RM29.82 million from RM16.79 million a year earlier despite revenue falling 10% to RM408.24 million from RM455.35 million. Its bottom line was also helped by tax incentives during the period.
As at Sept 30, EPMB had cash of RM76.19 million against debt of RM200.35 million, translating into a net debt of RM124.16 million. Hamidon said EPMB may raise more long-term funds in the form of bonds, rights issue or bank loans to finance the company’s diversification plans.
“We believe in the company,” he said when asked on the company’s move to buy back its own shares. Hamidon said EPMB had bought back its shares as they are undervalued.
In the 3Q ended Sept 30, EPMB repurchased 468,400 shares on the open market at an average price of 84 sen each. The securities are held as Treasury shares, according to EPMB’s filings with Bursa Malaysia.
EPMB shares closed at 90 sen last Friday, valuing the company at RM149.4 million.
At 90 sen, EPMB shares were traded at a 46.4% discount to its latest reported net assets per share of RM1.68. In price-earnings ratio terms, the stock was transacted at about four times annualised FY11 earnings compared with a peer average of 15 times.
Analysts believe EPMB’s business model is strategic by virtue of its focus on the two key automotive players in Malaysia — Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd (Perodua), both of which contribute some 80% of EPMB’s revenue.
But they also believe EPMB’s reliance on these two automobile producers could pose a risk to EPMB’s earnings should rival component manufacturers secure a slice of the business from these two automotive players. It is worth noting that DRB-Hicom Bhd, which is in the process of taking over Proton, also manufactures automotive parts and components.
Nonetheless, analysts have said the broadly positive review for Perodua’s replacement Myvi augurs well for EPMB since the latter’s revenue per car set had quadrupled. This is in tandem with the greater upstream localisation policy by Perodua.
As the manufacturing bottleneck for the replacement Myvi normalises, analysts expect EPMB’s sales to improve as well. However, the immediate downside risk to EPMB’s performance may stem from a slowing economy and negative consumer sentiment which may impact automotive sales in the coming months.
EPMB’s automotive parts division has two manufacturing facilities — one in Shah Alam and one in Batang Kali. The two factories have built-up areas of 16,000 sq ft and 428,000 sq ft respectively. The Shah Alam plant is designated for plastic-based automotive components as well as water meters while the Batang Kali plant manufactures metal-based automotive parts.
EPMB has strategic collaborations with global automotive parts manufacturers including Germany’s Bosch Pty Ltd and Japan-based Koito Manufacturing Co Ltd.
EPMB’s Batang Kali facility sits on a 22.6-acre (9ha) tract which includes a vacant portion of 6.6 acres. Analysts believe the vacant tract can be used to accommodate the expansion of EPMB’s manufacturing operations in the future.
While its annual automotive component capacity for both factories has already reached some 90%, EPMB has no immediate plans to expand its existing capacity but will instead upgrade its existing production lines to boost effciency, said Hamidon. EPMB earmarks a yearly capital expenditure of between RM50 million and RM80 million.
EPMB, which also supplies components for Toyota vehicles in the Middle East, is also capitalising on its sub-vendors’ capacity to boost EPMB’s production capability by another 25%, according to Hamidon. This is by virtue of EPMB being the assembler for semi-finished products from these vendors, he said.
“We have the building blocks to spur EPMB’s growth,” said Hamidon who also indicated that the company’s automotive component order book could sustain earnings for the next three years. The order book, he said, is worth some RM500 million a year.
He also mentioned the possibility of EPMB acquiring associate stakes of some 30% in automotive parts suppliers in Indonesia to expand the company’s business.
The expansion to Indonesia is crucial to leverage Perodua’s foray into the neighbouring country, where the new Myvi model was rebadged as the Daihatsu Sirion.
Perodua undertook the first shipment of 500,000 vehicles to Indonesia last June, according to news reports. It was reported then that Perodua was assessing the feasibility of exporting its vehicles to Thailand and South Africa.
This article appeared in The Edge Financial Daily, February 8, 2012.
