This article first appeared in The Edge Financial Daily on July 2, 2018

KUALA LUMPUR: Little-known Kedah-based firm Wong Engineering Corp Bhd (WEC) has certainly caught investors off guard with its rapid earnings growth over the past two years.

But the high-precision engineering company shows no signs of slowing down and, according to its chief executive officer (CEO) Yong Loy Huat, is currently in talks with local firms to expand inorganically as it seeks to expand its business and to further enhance its revenue.

“We are looking for expansion through joint ventures or mergers and acquisitions (M&A). We are negotiating and talking, but [there’s] nothing firm right now,” Yong said in a recent interview with The Edge Financial Daily.

Two sectors WEC is contemplating are aerospace and automotive.

“We can go into this industry (aerospace and automotive) as it’s still within the precision engineering scope. We are also looking [at opportunities] in different segments.”

Expanding overseas is also a possibility for WEC should its potential M&A partners have access to international markets. “Of course, when opportunity comes … if there is a win-win situation, we will surely want to tap into it,” said Yong.

Incorporated in 1982, WEC’s core business is manufacturing of high-precision metal stamped parts. In August 2016, Tiong Nam Logistics Holdings Bhd’s major shareholders, namely TNTT Realty Sdn Bhd as well as its founder and managing director Ong Yoong Nyock, made an unconditional mandatory takeover offer for WEC.

At present, Ong holds 36.97% of WEC, while Yong, who is Ong’s brother-in-law, owns about 18.9%.

Since the 2016 takeover, WEC has become profitable, following three consecutive loss-making years from the financial year ended Oct 31, 2013 (FY13).

The earnings growth momentum is projected to continue and Yong is “cautiously optimistic” that FY18 will be better than the previous year, driven by the high-precision engineering division, notwithstanding foreign exchange volatility.

About two-thirds of its revenue is derived from local sales, and one-third from exports, according to WEC’s 2017 annual report.

For the cumulative six months ended April 30, 2018, WEC’s net profit grew more than 10-fold to RM6.07 million, versus RM559,000 last year. Its revenue also jumped 44.39% to RM26.09 million, compared with RM18.07 million in the previous year.

Even excluding the one-off disposal gain on the completion of land and industrial building sales of RM2 milion, WEC’s half-year net profit for FY18 was still more than half of its full-year net profit of RM6.11 million for FY17.

Having last paid dividends in 2010, WEC is now more generous with its dividend payouts given the improved earnings.

It paid two sen per share for the last quarter of FY17, and more recently declared a first interim single-tier dividend of one sen for FY18, payable on Sept 18.

“We do not have dividend policy yet. But, whenever possible, we will reward the shareholders,” said Yong.

In line with its growing earnings, WEC’s share price has also been on an uptrend. Over the past year, it has gained about 24.82%, closing at 87 sen last Friday. Notably, the counter reached a 16-year high of RM1.33 on Oct 30 last year.

Looking ahead, Yong anticipates that the 4G era is at a tail end and with the telco sector moving into 5G — towards the end of next year, he projects — expects a surge in demand for its precision engineering works.

Worse is over

But WEC does not intend to be dependent on just the electrical and electronics (E&E) industry.

Last year, it diversified into property development and construction, and in October last year, was awarded its maiden project: building two blocks of affordable housing apartments together with related facilities in the Kuchai Lama Entrepreneurs Park, Kuala Lumpur.

The project, whose estimated gross development value is RM87.5 million, is expected to be completed by May 2020.

Yong observed that the cycle of the property and construction industry is inversely correlated with the E&E industry. Hence, he believes the sectors will create a sustainable revenue stream for WEC when either is down.

As property market sentiments continue to be weak, WEC will hold off property launches for now even though Yong believes “the worse is over” for property and construction.

“Moreover, the government had abolished the goods and services tax, which had incurred additional costs, especially for developers,” he said, adding that if the proposed sales and services tax, which will be reintroduced on Sept 1, is tax-exempt for individual property sales and purchases, developers will receive a timely boost.

According to Yong, WEC is contemplating a mixed development for its next project.