Success still promising better days ahead

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KUALA LUMPUR: Success Transformer Corp Bhd (STC), a manufacturer of transformers and industrial lighting products, expects net profit and revenue to improve in financial year ending Dec 31, 2014 (FY14) and FY15, driven by its light emitting diode (LED) lighting segment. 

For the first six months ended June 30, 2014, STC’s net profit rose 22.7% to RM16.7 million from RM13.61 million, while revenue grew 27.8% to RM189.64 million from RM148.46 million a year ago. 

The transformer and industrial lighting segment contributed RM126.12 million or 66.5% to the group’s revenue, while the process equipment segment accounted for the remaining 33.5%.

Its managing director (MD) Tan Ah Ping expects similar contribution from both segments moving forward.

“We have our own research and development team and facilities in [LED] lighting since 2009, and since then our focus is on LED lighting products to cater to the commercial and industrial lighting markets’ needs,” he told The Edge Financial Daily in an email interview.

STC operates a production plant in Sungai Buloh, Selangor, which is running at 60% full capacity. 

Tan said the LED lighting market has huge growth potential as more companies move to energy-efficient and eco-friendly sources of lighting. 

The group expects contribution from LED lighting to total lighting sales to pick up from 30% currently, possibly overtaking that of its conventional lighting products.

Tan said STC’s one-stop lighting solution to customers — from the design stage to manufacturing and after-sales service — enables it to meet the expected stiff competition from local and foreign players. 

“As for the transformer segment, we are expanding to more niche markets such as the information technology-related segment, marine segment and other industries that require our specialties in design consultancy,” he said.

Tan noted that transformers offer higher margins than lighting products as the former is custom-made while the latter is usually produced for the masses. 

On July 9, STC’s 60%-owned subsidiary Ningbo Success Zhenye Luminaire LLC (NSZ) incorporated Shenyang Success Zhenye Luminaire LLC, subscribing two 60% in the latter for 300,000 yuan (RM156,000). This will provide NSZ with an opportunity to expand its business in the local market.

Tan deemed the contribution from China to be “significant” within these three years, but declined to give a number.

Thus far, STC has yet to penetrate the China consumer market although eight is the group’s major supplier in components. Nonetheless, it hopes to start selling some of its lighting products to China through NSZ. 

For its first half of FY14, the local market contributed 79% to the group’s revenue, while the remaining 21% was derived from overseas sales to Singapore, other parts of Southeast Asia, and the Middle East.

On its process equipment segment, which is represented via its 65.26%-owned subsidiary Seremban Engineering Bhd (SEB), Tan said SEB’s order book currently stands at RM90 million, which will keep the company busy for the next 12 months.

In terms of allocation of clientele, the oil and gas portion increased from just 10% last year to 60% this year, with the palm oil industry accounting for 25%.

Tan said the client contribution to SEB revenue varies, depending on the projects taken by the company. “We are [also] working towards tendering for the refinery and petrochemical integrated development project in Johor, but have yet to secure anything,” said SEB managing director Peter Wong.

Tan said STC will continue to seek mergers and acquisitions in related businesses to grow, although nothing has been confirmed.

Tan’s family vehicle Omega Attraction Sdn Bhd is the biggest shareholder of STC, with a 46.26% stake as at April 30 this year, its latest annual report showed. Bloomberg data showed the group has a free float of 30.6% on an issued base of 116.61 million shares.

STC’s share price had been trading below its net tangible asset (NTA) per share of RM2.13 and RM1.89 as at end-2013 and 2012 respectively, according to figures from its annual report. As at June 30, its NTA stood at RM2.25. Based on its closing price of RM1.74 last Friday and annualised FY14 earnings per share of about 28 sen, STC trades at an undemanding price-to-earnings ratio of 6.2 times.

This article first appeared in The Edge Financial Daily, on October 13, 2014.