Insider Asia’s Stock of The Day: Success Transformer Corp Bhd

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SUCCESS, one of the country’s largest low-voltage transformer and industrial lighting manufacturers, has outperformed most of its peers with double-digit growth in sales and profits for the first half of 2014. Amid a challenging environment faced by Malaysian corporates, Success saw its pre-tax profit rise 21.4% to RM25.4 million in 1H2014, while revenue increased 27.7% to RM189.6 million.

Founded in 1980, Success is involved in the manufacturing and trading of electrical apparatus and industrial lighting and fittings, metal stamping parts and metal castings. 

In 2007, it ventured into process equipment manufacturing with the acquisition of Seremban Engineering Sdn Bhd (SESB). The latter is engaged in the fabrication of process equipment and metal structures (such as storage tanks, silos, unfired pressure vessels and heat exchangers) and the provision of maintenance, repair and shutdown works. SESB caters to clients in diverse industries such as palm oil, food processing, oil and gas and chemicals. 

For FY2013, the transformer and lighting segment accounted for 67% of sales with the balance contributed by the process equipment segment. Going forward, the transformer business will expand into niche markets such as information technology and marine while Success also expects higher contribution from LED lighting, which is benefitting from increasing demand for energy-efficient lighting products. 

Success has seen steady growth over the years. From FY2010 to FY2013, revenue grew by a compounded annual growth rate (CAGR) of 15.8% to RM322.7 million, while pre-tax profit increased by a CAGR of 9.3% to RM44.9 million. The local market contributed 83.8% to sales in FY2013 while the rest came from exports. Its net gearing ratio stands at a manageable 25.1%.

The stock is trading at a low trailing 12-month P/E ratio of just 6.4 times and 0.8 times book value. Dividends per share was 3 sen in FY2013, translating into a yield of 1.8%. 

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This article first appeared in The Edge Financial Daily, on December 30, 2014.