KUALA LUMPUR: Signature International Bhd is looking outward as growth prospects in the domestic market slows and takes a bite out of the kitchen cabinet and wardrobe specialist’ profits.
According to its co-founder and group managing director Tan Kee Choong, the group wants to expand its geographical footprint in Asean, starting with Indonesia, Thailand and Vietnam.
“We have identified the potential local partners to work with and are working out the structure of the partnership, for example, whether it will be a joint venture or they can be our dealers,” he told The Edge Financial Daily in a recent interview.
Already, Signature has working partners in the project market in Vietnam, Cambodia, Thailand, Myanmar, Papua New Guinea, Indonesia, the United Arab Emirates, Sri Lanka, Pakistan and India.
Tan sees the group taking advantage of the Asean Free Trade Area (Afta), which enables Asean countries to trade with zero or minimal tariff, for its growth plans.
“While we have a presence in these countries, we hope to see them contribute more to our bottom line, either from the retail or project sector,” he said.
“We still have an advantage within Asean as the kitchen furniture manufacturing industry in most countries is still small,” Tan added.
While analysts are optimistic about Signature’s chances of winning the bid to provide kitchen cabinet systems for Phase 3A of the Battersea Power Station project in London, estimated at RM50 million, Tan said there is not much progress on the matter as the main contractor, French-based Bouygues Construction, has yet to officially call for the tender.
“We continue to follow up with them, but there has not been much progress. Maybe we should focus more on Asean, which is nearer to us compared with the UK,” he said.
Signature’s net profit fell 40.6% to RM3.36 million in the second financial quarter ended Dec 31, 2016 (2QFY17) from RM5.65 million a year ago, due to lower project revenue contribution from the kitchen and wardrobe segments.
Its quarterly revenue also declined 26% to RM40.66 million from RM54.97 million.
For the six-month period (6MFY17), its net profit fell 36.5% to RM6.7 million from RM10.54 million in 6MFY16, while revenue dropped 16.4% to RM83.46 million from RM99.84 million.
Tan explained that the weaker financial performance was due to lower recognition from its project division due to slower project deliveries, as well as a lower margin.
“We expect to recognise a higher number of projects in 3QFY17 and 4QFY17. We expect more orders to come mainly from property developers in the Klang Valley and Johor,” he said.
Signature is experiencing margin compression in its project segment as local developers are more cautious in their spending and put pressure on suppliers like Signature to reduce their price.
Signature’s order book stood at RM220 million as at end-February 2017, which will keep the group busy for the next one year.
The project segment — where Signature secures projects from developers by providing kitchen cabinets for their residential units — now contributes about 70% of its total revenue. The remaining 30% comes from its retail business.
Signature, which has in recent months set up a new team to expand its retail business, aims to see more revenue contribution from its retail division. The group is in talks with several parties to grow its dealership network locally, as well as expand the number of its retail outlets.
“The results won’t be immediate. We hope revenue contribution from the retail business to grow to 40% in three years,” he said.
Despite the slowdown in new property launches, Tan, who is Signature’s largest shareholder with a 25.36% stake, still sees many business opportunities in the local property market, having tendered for RM500 million worth of jobs.
Innovation to boost growth
The group has developed a new business model where developers can buy cash vouchers from Signature to be given away as free gifts to potential homebuyers to boost their sales.
“Developers have responded well to this new scheme and we are expanding our portfolio to include wardrobe systems for the bedroom and the living room, enabling us to cross-sell our products,” said Tan.
Meanwhile, Tan said Signature’s current production capacity is sufficient to meet any rise in demand, adding that the group had invested RM1.5 million for a fully automated finishing line from Italy to lessen its dependence on foreign labour.
“Capacity is not a problem for us. Our semi-automated factory [in Selangor] currently runs five production lines with one shift. If there are more orders, our workers can work longer hours,” he said, adding that the factory employs 100 workers.
Year to date, Signature’s share price has risen 23% to close at 98.5 sen last Friday, giving it a market capitalisation of RM225.66 million.
Tan said the group, which is in a net cash position of RM30 million, will continue to buy back its shares as it believes its stock is undervalued.
“We will continue to buy back our shares. It’s one way to support the price. There are a few options for how we can use these shares, but we have yet to decide,” he added.