GEORGE TOWN: Pensonic Holdings Bhd (fundamental: 0.35; valuation: 3), which is among the top three local brands of small electrical and electronic appliances in Malaysia, is expecting its overall sales to drop 10% in the second quarter of the year (2Q15), no thanks to continued weak consumer sentiment in the market and the impending goods and services tax (GST).

“We believe there could be an overall drop in sales of about 10% between March and May when the GST is implemented, because dealers may not want to stock up as they will possibly face cash-flow problems in the first three months.

“The overall market is very cautious and spending power [of local consumers] is not improving. We must find ways to control cost and maintain sales,” the electrical and electronic appliances manufacturer’s chief executive officer Dixon Chew told The Edge Financial Daily recently.

Hence, Pensonic, which saw its first half ended Nov 30, 2014 (1HFY15) recording a marginal increase in its net profit to RM2.796 million compared with RM2.72 million a year ago, expects its full FY15 earnings to be largely flat compared with FY14.

“We are taking a conservative approach on domestic market sales because there is a lot of uncertainties due to the GST and the global economic factor,” said Chew.

“We are also exercising caution by reducing the introduction of new products (upgrades) into the local market because we realise the market might not absorb them due to the weakening ringgit,” he added.

About 70% of Pensonic’s group revenue is from the local market, with the remainder 30% from overseas exports.

FY15, said Chew, would be a year in which the company will rely more on the overseas market for revenue growth — if any. For now, Chew said the group is just hoping to maintain its revenue at the level that was achieved in FY14.

Chew said Pensonic’s overseas focus would primarily be on Indonesia, Vietnam and the Philippines, which showed strong growth in 1HFY15, and could potentially make up  of the group’s total foreign market revenue input.

Meanwhile, the dampened market sentiment notwithstanding, Pensonic has invested an initial RM1 million in developing its Internet of Things (IoTs) and connected devices segment.

“The investment would be channelled into product design, development and marketing. We see huge growth potential in the IoTs market. If we can capture that market, it would be good,” said Chew.

One of the products it is working on for this segment is a bluetooth device which it hopes will be able to contribute 10% to its revenue by 2QFY16.

The bluetooth device is a multi-purpose gadget for smartphones that will allow users to talk safely on the phone while charging, and alert users to the phone’s location if it is misplaced. It can also function as a power bank and a selfie remote control.

Chew said the device is slated to be launched in 4QFY15 and will be the first in a series of IoTs that would enable the group to “test the waters” in an entirely new venture.

Chew said the group’s exploration into the IoTs market, which includes wearable and connected devices, was timely as smart devices have become a way of life. As such, the venture could ensure Pensonic’s sustainability in the fast-changing smart-technology era.

Additionally, he said the Asean region had about 60% youths, which makes it a market worth tapping for technological devices.

“This part of the Asean region is the third most populous country in the region. With the combination of 60% of the youth, it is a big market to tap along with the rise in middle-class consumption,” he said.

“We are in the final stages of product development. In the meantime, we are identifying and discussing our business plan with key partners such as component suppliers and distributors, including integrated circuit (IC) designers and application developers.

“We need to build an ecosystem [for IoTs] first before we can go in in a big way because the supply chain for this segment is different from our traditional suppliers and distributors,” he said.

Pensonic, which began as electrical appliances shop Keat Radio and Electrical Co in 1965, now produces and sells products under brands such as Pensonic, Cornell, Lebensstil Kollektion, Indesit, GE and Gaggia to cater to the medium to premium brand consumer market.

This article first appeared in The Edge Financial Daily, on February 9, 2015.