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This article first appeared in The Edge Financial Daily, on May 9, 2016.

 

BUTTERWORTH: Industrial valves maker Unimech Group Bhd, whose share price has been battered badly in the past few months, expects to see a nearly 40% rise in current-year net profit to some RM14.5 million, having taken efforts to reduce its borrowings in Indonesia and collect receivables, said its chief executive officer Datuk Lim Cheah Chooi. 

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Net profit of RM14.5 million would translate into earnings per share of about 11.2 sen. 

Lim said the company is also carrying out a restructuring of its subsidiaries to improve profitability.

Speaking to The Edge Financial Daily, Lim is also confident that the stronger ringgit would help the company save up to 10% in import costs for the current year ending Dec 31, 2016 (FY16).

Lim projects Unimech’s revenue to grow to about RM250 million, a rise of nearly 5% from RM238.6 million the year before.

In FY15, Unimech recorded a 31.2% drop in net profit to RM10.4 million on impairment of receivables and unrealised foreign exchange loss in the fourth quarter.

Lim said the impairment was caused by a shipbuilding customer experiencing difficulties in paying its debts to Unimech due to the slowdown in the oil and gas (O&G) industry.

“We have about RM30 million bank borrowings in Indonesia, [which] we hope to reduce by RM10 million this year because we do not want it to affect our working capital and capital expenditure,” he said.

He added that the higher bank borrowings were also due to exchange rate changes.

“We borrowed in US dollars, so some of the loss is due to foreign exchange loss. At the time we borrowed, [the ringgit] was up to RM4.40 [against the US dollar] but the ringgit has dropped to about RM3 now,” he said.

Unimech, set up in 1996, manufactures and distributes valves, instruments and fittings (VIF) for the general industry — including air conditioners in factories, condominiums and commercial buildings — and the O&G sector.

It produces its own brand of core products such as Arita (metal-based products like valves and fittings), Q-Flex (rubber-based products) and Unijin (instruments and gauges) for the VIF segment.

In 2015, about 78%  of the company’s revenue was contributed by the VIF segment, including the O&G sector, followed by pumps, burners and boilers.

“In Malaysia, we sell all products but in our overseas markets, we only sell VIFs, not pumps. We do business in Malaysia, Singapore, Thailand, Vietnam, Australia and Indonesia. Malaysia and Indonesia are our largest markets.

“We have warehouses and marketing units in Thailand, Indonesia, Australia and Vietnam. Manufacturing plants are in Malaysia and China,” said Lim.

“We are expanding our presence in the O&G sector, which contributes less than 10% to our revenue now. We hope to raise it to 10% in two years because we are already the market leader in the general industry,” he added.

He added that 55% of its revenue was contributed by the local market, with the remaining 45% by the overseas markets.

“Indonesia contributed 29.7% in 2014 but in 2015, sales from Indonesia dropped about 17% because as a resources-based country that exports palm oil and minerals, both sectors were badly affected in 2015. So that affected our business.

“We hope to increase our overseas market contribution to 60% in two years through the O&G and shipbuilding sectors in Indonesia, Vietnam and Thailand,” he said.

On dividends, Lim said Unimech has a 30% payout policy since the company was listed in 2000.

“For FY15, we declared a 3.5 sen dividend. Not many companies can do that. Our company is neither in a popular industry or volatile sector, and not many people know what is a valve,” he said.

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