SUCCESS Transformer Corp Bhd which has been hogging the gainers’ list this week hopes to start reaping some profit from its 65%-controlled unit, Seremban Engineering Bhd (SEB), from financial year ending Dec 31, 2016 (FY16) onwards even as the latter continues to reel from the effects of a cost over-run from one of its Sabah-based projects at the moment.
As for the current FY15, Success, which makes electrical products like LED lighting, transformers and automative battery chargers for various industries, is expecting to turn in a “consistent” financial performance – at best – amid the gloomy economic environment which has an effect on the demand for its products, its general manager (finance) Wong Wai Hung says.
“We remain conservative, looking also at how most global economies are slowing down in growth,” Wong, who was recently appointed as an executive director at SEB, adds.
Notably, about 60% of Success’ products are sold in the local market, while the remaining 40% are marketed abroad.
The company first bought into SEB, a smallish local machinery and equipment fabricator, in end-2006, paying almost RM15mil for a 60% stake in that firm.
Consequently it bought up the remaining shares it did not own in the company for RM21.78mil in 2008 but later slashed its holdings to 65% after SEB went public in 2010.
According to Wong, since Success bought over SEB, the company had been contributing an average of 20%-30% to Success’ total group profits until last year when cost over-runs from SEB’s Sabah Ammonia Urea also known as the Samur project, and higher finance costs as a result of higher borrowings put a huge dent in SEB’s earnings.
“The effects of the cost over-runs should be diluted by next year,” Wong says.
Attracting a fair bit of attention of late, the normally low-profile Success stock has seen its trading volume jump several folds in the past one week with its price currently trading at a record high of RM2.07.
This week alone, the stock has added some 23%.
Notably, at its current price it is already trading close to its net tangible assets of RM2.16 per share.
Repeat orders
On its side, Wong says Success’ orders are not contract-based nor are they locked in via any agreements like many of those which are in the manufacturing industry.
“However, we bank on repeat orders from our customers which have been with us for a long time to keep sales steady,” Wong says.
Last year, Success, which was established in 1980, saw sales amount to some RM371.5mil, with net profit coming in at RM24.4mil, giving it a profit margin of 6.5%.
A total of 4 sen was paid out in dividends to shareholders in FY14, amounting to a yield of 2.4%.
Up to the six months ended June 30, Success’ net profit stood at RM14.7mil on sales of RM195.3mil compared with a higher net profit of RM16.7mil but lower revenue of RM189.6mil for the same period, a year earlier.
Success, whose market capitalisation stands at some RM239mil sells its products via more than 1,000 distributors nationwide and also has several overseas subsidiaries including in Singapore, Kenya and Australia through which it conducts its global business.
To enhance the company’s efficiency levels and overall profit margins, Wong notes that some of its overseas units may undergo some form of restructuring soon.
“For those which are not doing that well, we may streamline them for better efficiency.”
Balance-sheet wise, Success has property, plant and equipment worth RM138.9mil, cash and bank balances of RM34.9mil with total borrowings standing at RM120.8mil.
Its receivables are relatively high at RM123mil, according to its latest figures released to Bursa Malaysia.
In recent filings to the stock exchange, a slew of boardroom changes were announced at Success including the cessation of a couple of SEB directors as shareholders of the company.
On Wednesday, it said it had appointed Tan Chung Chiah as executive alternate director. Tan is the daughter of the company’s managing director Tan Ah Bah @ Tan Ah Ping.
Wong says Success does not have any plans for major corporate exercises at this stage and is merely focusing on business as usual in these trying times.
In the company’s latest annual report, Success told its shareholders that “the group will continue through the challenges but with meticulous efforts to expand and to seek new business opportunities and operations.”
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