This article first appeared in The Edge Financial Daily on December 3, 2018

KUALA LUMPUR: Mikro MSC Bhd’s managing director sees more headwinds ahead for the manufacturer of protective relays, power meters and power factor regulators.

Yim Yuen Wah , who is also the group’s largest shareholder with a 34.22% stake as at Sept 28, 2018, said prospects for Mikro MSC have been adversely affected by fewer construction jobs, in which its products form an integral part of electricity distribution systems in residential, commercial and industrial buildings, infrastructure and public amenities.

He said investors have remained cautious about investing in the country after recent decisions by the government to scrap several high-profile infrastructure projects in a bid to reduce the national debt.

“We hope our earnings will improve again in one or two years. But the year ahead will be challenging as our products are related to the construction sector,” he told The Edge Financial Daily after the group’s annual general meeting on Nov 22.

Its executive director and major shareholder Fong See Ni concurred, noting that soft market conditions had resulted in Mikro MSC reporting lower revenue and sharply lower net profit for the last financial year ended June 30, 2018 (FY18), largely due to a drop in sales volume and margin compression.

Mikro MSC said FY18 net profit fell 45% to RM6 million. The group reported a revenue of RM47.79 million, down 5% from a year ago.

The ongoing US-China trade war is also worrying Fong, who sees the group indirectly affected by the tit-for-tat tariffs on thousands of products.

As part of its expansion, the group has acquired a piece of freehold land with a factory and office in Kota Kemuning, Shah Alam, Selangor, in which it intends to relocate its entire operations to this new plant.

The new production equipment being installed at the new plant will enhance the group’s production flow and efficiency of operations, as well as increase production capacity, said Yim.

Yim said, however, completion of the plant has been delayed to early 2019 due to renovation works.

Going forward, Yim said the group will look outward for growth, especially Vietnam and Indonesia which, along with the Indian subcontinent, contributed to almost half of its revenue for FY18.

“We expect to increase the level of export sales to Indonesia and Vietnam, while exports to other markets will be average,” he said, adding that the group has also expanded its footprint into Laos and Burma but they have yet to make a significant contribution to its revenue.

Meanwhile, Fong, who is also the chief technology officer of Mikro MSC, said the group is also exploring to introduce more Internet of things (IoT) products.

“Today, everybody is talking about it (IoT). We are experimenting it too. If you want customers to take out more money from their pockets, then you must provide an added advantage.

“For instance, if you look at our X Series products, there are added advantages,” he said.

The group will be focusing on growing its X Series devices which were launched in January this year and run on “Mikrosafe” — a proprietary integrated software suite designed by the group to monitor and control of electrical protection and energy consumption in commercial and industrial buildings.

Last Friday, Mikro MSC posted a 79.6% drop in net profit to RM506,000 for the first financial quarter ended Sept 30, 2018 (1QFY19), from RM2.48 million a year ago, while revenue fell 25.2% to RM9.8 million from RM13.09 million for 1QFY18.

The group attributed the weaker quarterly performance to the lower sales volume recorded.