This article first appeared in The Edge Financial Daily, on October 15, 2015.

KUALA LUMPUR: Mikro MSC Bhd, which designs and manufactures electronic products for the power distribution industry, expects better net profit for the current financial year ending June 30, 2016 (FY16), compared with RM8.26 million in FY15, as the strong US dollar has helped to boost the group’s earnings.

Mikro managing director and major shareholder Yim Yuen Wah said as the group generates a significant proportion of its earnings in US dollar, this helps to boost its income. Some 72% of Mikro’s revenue is from domestic sales and the rest from exports. 

The group saw net profit increase by 47.9% in FY15 from RM5.58 million in the previous financial year, mainly due to higher overseas sales. Revenue rose 28.3% to RM38.99 million in FY15 from RM30.39 million in FY14.

Yim, who owns 37.02% of Mikro’s shares, said overseas sales account for 38% of the group’s revenue, but foreign-exchange (forex) gains on its receivables from overseas operations are expected to increase their contribution to about 50% in FY16. “The forex gains will more than offset higher costs of imported raw materials, such as integrated circuits,” he told The Edge Financial Daily in an interview. 

Yim noted that the forex gains will also help improve the profit margin of overseas sales to 15% from the current 10%. Yim also said the group’s net profit margins range from 18% to 20%, which are reached as it has total control over its costs. “We develop and manufacture the products ourselves. We know the market price, so we can control the cost in the research and development stage,” Yim said. 

“Unlike assemblers who assemble products for others, their margin is low. For us, we design and manufacture our products, so our margin is definitely higher,” said Mikro executive director Fong See Ni, who is a substantial shareholder of Mikro with an 8.02% stake.

However, Yim warned that the outlook for Mikro will likely turn challenging in FY17 and FY18, due to a lag effect from a slowdown in the domestic construction sector. “That’s why we need to boost our overseas operations to cushion the impact from the slowdown in the construction sector,” he said.

 Mikro’s main overseas markets are Vietnam, Iran and India, but it is looking to expand its footprint in Thailand and Indonesia.

However, Fong said the group had no plans to venture into the United States and Europe due to high costs to get international accreditation for its products, adding that these markets are more inclined to buy electronic products from established international brands, such as ABB Group, Siemens AG and Schneider Electric SE.

Mikro is one of two Malaysian companies that produce voltage meters, power meters, overcurrent and earth fault relays, voltage relays, earth leakage relays, power factor regulators and annunciators. It markets its products not through advertising as the products are targeted at industrial users who are involved in building designs, said Yim.

Mikro sells its products through dealers to electrical consultants, who design and select switchboard panel manufacturers that source the products from its dealers, he added.

Marketing costs, research and development and aftersales services constitute a major part of the group’s operating costs. The group is looking at developing network-enabled intelligent devices and solutions, based on the Internet of things and big data concepts.