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This article first appeared in The Edge Financial Daily, on December 28, 2015.

 

SUNGAI PETANI: EG Industries Bhd, which saw its net profit rise 13-fold year-on-year to RM26.5 million in the financial year ended June 30, 2015 (FY15), is aiming to double its bottom line by FY18, by focusing on its niche product, box-builds, under the consumer electronics sector.

Group executive officer Alex Kang said the group’s new 

bottom-line target would be achievable as the group has embarked on a RM30 million expansion of its plant in the Bakar Arang Industrial Estate here, which would raise its capacity by 50% by the third quarter of FY16.

He explained that the operation would expand the group’s scope of electronic manufacturing systems (EMS), which includes box-build, and complement its present expertise in printed circuit board assembly (PCBA).

“EMS includes box-build, which refers to end-to-manufacturing services, from designing to shipping of completed products to customers’ end users. There are not many companies that are in this segment.

“We want to capitalise on our expertise in this area, particularly in the current economic slowdown globally. Europe’s economy is not good now but we would be able to weather it. We have the potential to grow because they (Europeans) would turn to Asia to support the demand [of its existing clients],” he told The Edge Financial Daily last Friday, adding that the group is keen on expanding the box-build sector as it has higher margin.

Its stellar FY15 bottom line came largely from sales of higher-margin products and a fair value gain of RM14.6 million following the disposal of financial assets.

Earlier this month, the group announced it had secured RM150 million worth of box-build orders from Europe and expects to see a 20% growth to its revenue in FY16.

Of the RM150 million of orders, RM25 million for the box-build of information and communications technology and consumer electronic products has been recognised in its first quarter ended Sept 30, 2015 (1QFY16), with the balance to be recognised for the rest of FY16, it had said then.

EG Industries is among the top 50 EMS providers in the world, according to US-based Global Manufacturing Marketing Insider.

Presently, the group derives 33% of its revenue from consumer electronics while the remaining 67% comes from its data-storage manufacturing segment.

Segmentally, Kang said 10% of the group’s revenue comes from box-build assembly, while 90% is from its PCBA.

“Regarding PCBA, 65% revenue is derived from data storage and 25% is from consume electronics. We aim to increase the [contribution from the] consumer-electronics sector, where we already have expertise in PCBA and plastic-injection moulding. With our box- build niche capability, we expect the consumer-electronics sector to grow. However, we will maintain the surface-mount technology segment, comprising data storage and consumer electronics, as our core business,” he said.

Kang also revealed EG Industries is now in talks with a few small- to medium-sized EMS companies in Malaysia and Thailand for vertical integration in terms of supply chain, but declined to reveal more.

For 1QFY16, EG Industries’ net profit fell 33.35% to RM5.04 million from RM7.56 million on the absence of a gain on disposal of other investments (RM6.7 million) that was seen in 1QFY15.

The group said netting off the effects of the gain on disposal, its pre-tax profit grew about 5.2 times to RM5.34 million from RM1.03 million, mainly driven by a favourable product mix and enhanced operations efficiency. However, its 1QFY16 revenue was down 1.45% to RM190.88 million from RM193.69 million, due to a change of focus to high-margin products.

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