This article first appeared in The Edge Malaysia Weekly on March 2, 2020 - March 8, 2020

AFTER two years in the red, ACE Market-listed hospital-bed manufacturer LKL International Bhd is hoping to turn the corner in its financial year ending April 30, 2020 (FY2020), as demand for its products rise, a price hike notwithstanding.

In a recent interview with The Edge, LKL managing director Lim Kon Lian explains that the group had been bogged down by higher material and labour costs in the past, a cost increase not sufficiently offset by revenue growth.

“It was a difficult time for us due to the higher material costs, which went up by 10% to 15%, coupled with labour costs that had also increased. We had also incurred some expenses setting up the office of our trading company, and some exhibition expenses as well.

“Though we were [saddled] with these higher costs, we did not raise the prices of our products back then. However, in FY2020, we took a decision to increase prices, and it was not something that only we did, as other players in the industry have raised their prices as well,” he says.

The higher prices have not deterred customers as demand has been steady. On average, LKL makes 9,000 beds per year, and Lim says its manufacturing plant in Seri Kembangan, Selangor, has been running at full capacity because demand from hospitals in developing countries such as Bangladesh, Maldives and Nigeria, as well as local hospitals, has grown.

“With the Covid-19 outbreak, we have seen an increase in enquiries for our products from overseas customers, some even for products that we do not manufacture such as face masks.

“However, I would not say that it is just because of Covid-19 that our orders have been ramping up because even before the outbreak, we had been aggressively promoting our products overseas, and this has translated into higher demand,” says Lim, who started out as an apprentice in a metal fabrication business before forming LKL with his wife, Mok Mei Lan, in 1993.

LKL is akin to a one-stop centre for hospitals, as its wide range of products is sufficient to cater for their vital requirements.

“We have around 220 standard products in our portfolio, but if you were to include the products that are customised to the requirements of our customers, then it is more than 10,000 products,” says Lim.

Under its subsidiary LKL Advance Metaltech Sdn Bhd, the group manufactures all kinds of hospital beds, such as electrical, hydraulic, fixed height, mechanical and delivery beds. It also makes transport trolleys, medication carts, medical chairs and hospital room furniture, instrument trolleys, nursery equipment and examination tables. In addition, it produces wound dressing and medical wound care products under its house brand Dynafix.

LKL’s customers from the private sector include leading hospitals under the IHH Healthcare group, KPJ Healthcare group and Columbia Asia group, while some of the public hospitals that have used LKL products include Hospital Putrajaya and Hospital Serdang.

Last year, the group secured two contracts worth RM11 million to supply medical beds and equipment to SELGATE Rawang Hospital and a teaching hospital and medical academic centre in Mukim Jeram, Selangor. SELGATE is a wholly-owned subsidiary of Perbadanan Kemajuan Negeri Selangor.

The group is also involved in the trading of medical equipment, under its subsidiary Medik Gen Sdn Bhd. In March last year, Medik Gen entered into a distribution agreement with Taiwanese company BenQ Medical Technology Corp to distribute the latter’s ultrasound system, surgical light and surgical table, and related spare parts and software.

Under the agreement, Medik Gen was appointed as BenQ’s distributor to carry out sales activities in Malaysia, which not only enables LKL to broaden its product offering but also expand its customer base.

“We would like to do more trading activities, and we hope to expand our trading products base, so that we are not so focused on manufacturing activities,” says Lim.

Its efforts have put it on a stronger footing this year, as the group reported a net profit of RM557,000 in the first half of FY2020, more than triple its 1HFY2019 net profit of RM141,000. Revenue for the period grew by 16% to RM20.02 million.

In its quarterly financial report, the group says that it intends to maintain the rate of revenue growth through ongoing business development and better cost management.

“We are also positive on the higher allocation for the healthcare sector in Budget 2020 for the building of new hospitals,” says Lim of the RM30.6 billion allocation this year for the sector (RM28.7 billion in 2019), of which RM1.6 billion is for the construction of new hospitals and the upgrading and expansion of existing ones.

Healthcare-related stocks piqued investor interest following the Covid-19 outbreak, and LKL’s share price spiked from 13.5 sen on Dec 31 last year to 24 sen on Jan 28, a 78% increase within a month.

Its share price has retreated since, closing at 16.5 sen last Thursday, which values LKL at RM70.7 million.

Lim and his family — his wife Mok, daughter Elaine Lim Sin Yee and son Ben Lim Pak Hong — are the largest shareholders of LKL. They control some 71% of the company, which was listed in 2016 at 20 sen a share.

In FY2019, the group reported a higher net loss of RM2.5 million compared with RM1.1 million in FY2018. However, revenue grew 25% year on year to RM37.18 million in FY2019.

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