This article first appeared in The Edge Financial Daily on May 29, 2017 - June 4, 2017

KUALA LUMPUR: ConnectCounty Holdings Bhd seems to have been gaining interest among the investing fraternity after the emergence of new substantial shareholder Chang Choon Ming, who was hailed as “the next big market mover” in the company last September, with its share price jumping 2.8 times to 31 sen last Friday from 11 sen on Sept 28.

When met last month, ConnectCounty executive deputy chairman Ang Chuang Juay said the group is looking to acquire a connector manufacturer in the province, which the company sees as the final step to becoming a fully vertical integrated company. The move is expected to enable it to stay price-competitive and focus on higher-margin products to improve earnings.

“We have identified a few options. Our plan is to be a fully vertical integrated company by the end of this year,” he told The Edge Financial Daily at the interconnect and cable solutions provider’s headquarters in Shenzhen, China, where all its manufacturing facilities are based.

Ang, however, said it is still early to decide whether a cash call is needed to finance the buy. The group’s cash and cash equivalents as at March 31 were at RM13.99 million.

Meanwhile, its wholly-owned China subsidiary, Rapid Conn (Shenzhen) Co Ltd, has incorporated two majority-owned subsidiaries to gain control over its supplies and improve supply chain efficiency.

Both 80%-owned, Shenzhen Rapid Power Co Ltd (RCP) is involved in cable sheathing to protect cables from mechanical or environmental damages, while Shenzhen Rapid Resin Co Ltd (RCR) is in the production of thermoplastic elastomers, the key raw material in the production of cable casings. Both subsidiaries commenced operations last November and started trading in February.

ConnectCounty specialises in the design and customisation of interconnect solutions for various industries, with operations in the US and Singapore. It also has sales representatives in Taiwan.

It slipped into the red in financial year 2016 (FY16) with a net loss of RM11,000, compared to a net profit of RM2.69 million in FY15, despite a 26% rise in revenue to RM81.71 million — its highest annual turnover since the company’s incorporation. It blamed the loss on low-margin products and discounts given to key customers.

Though profitable in the first quarter ended March 31, 2017, net profit fell 30% year-on-year to RM525,000, despite a 54% jump in revenue to RM27.66 million, as RCP and RCR — which were not yet profitable — incurred higher operational costs.

Ang, who is hopeful the company will turn around in FY17, said the company’s rather erratic bottom line over the years (see earnings chart) was mainly due to extraordinary expenses. For example, in FY16, it booked expenses like written-off bad debts and corporate exercise fees related to the proposed acquisition of Kejuruteraan Asastera Sdn Bhd (KASB), which was later aborted. In FY12, an existing customer of the group filed bankruptcy resulting in about US$506,000 in sales projection lost from the customer.

“We believe we will be able to deliver better results this year”, said Ang.

Going forward, Ang said the company is going to stick to what it knows best — its own business or related ones only. It is learnt this was what was demanded by some new substantial shareholders, perhaps driven by some flip-flop decisions the company was seen making in recent years with regard to diversifying into a new business.

A case in point: It abandoned its plan to buy 51% of KASB last August, a plan it came up with less than a year after scrapping an earlier proposal to buy over the entire stake of the same company. KASB provides mechanical and electrical (M&E) engineering services and trades electrical materials. The buy would have resulted in ConnectCounty going into M&E contract works.

“We faced some hiccups in the first time proposing, so we aborted it. Later, we proposed again with a lower stake buy, but found it was not suitable after a due diligence and review, so we abandoned it. We initially thought owning an M&E company could help us get more business,” Ang said.

In September last year, ACE Credit (M) Sdn Bhd became its new substantial shareholder with a 12.636% stake. ACE Credit is a subsidiary of ACE Holdings Bhd, in which Chang is the single largest shareholder. As at April 5, Ace Credit had a direct stake of 14.04%, and Chang, who was appointed as chairman of ConnectCounty on Oct 21, 2016, had a 9.49% stake.

With its vertical integration, Ang said ConnectCounty will be banking on higher-margin products to improve earnings. For example, he is confident that Uni-charge, its patented in-house charging station that allows consumers to charge any smart device brand, will be well received.

On Sept 13 last year, just a couple of days before Chang-linked ACE Credit bought into the company, ConnectCounty announced that it had inked a distribution agreement with Venus Group Inc, which manufactures textiles in the US and internationally, for the distribution of charging station products in the US, including Uni-charge, a multiple-smart-device-brand charging station.

“We are finally delivering our first 500 units of the charging station to Venus after initial hiccups of not getting a supply of Apple chipsets,” he said, adding that the company will keep stock to avoid insufficient supplies in the future. The batch was supposed to be delivered by end-January.

The collaboration with Venus, which supplies linen products to hotel chains, could open more opportunities for the group as it further develops and improves its charging station, said Ang.

“Venus is providing us some funding to develop new innovative products to better serve their clients. We are looking to install the charging device into tables or table lamps, supplying to hotel chains and maybe to coffee chains. We have developed another 

Bluetooth charging station which can be used as a speaker and alarm,” Ang shared.

He added that the company plans to collaborate with retail chains to market these devices in the US and Europe.