SUNGAI PETANI: A rights issue or private share placement is on the cards at EG Industries Bhd as the consumer electronics product maker is seeking to beef up its financials to be on a par with its peers.
“We need to conduct a corporate exercise soon to strengthen our financials because we are [relatively] small in terms of market capitalisation or paid-up capital,” said its executive chairman Terence Tea Yeok Kian.
EG Industries’ peers, as observed by UOB Kay Hian (M) Holdings Sdn Bhd in a recent note, include SKP Resources Bhd and VS Industries Bhd.
“Volume-wise, we are equally big and the margin is there because of the sector of the business we are in,” said Tea, adding that EG Industries is moving in the right direction “which is vertical integration or vertical integration plus (VI-plus)”.
The group’s paid-up capital as at Sept 30 was RM105.7 million, while its market capitalisation at the close of trading last Friday stood at RM183.8 million. Its shares fell one sen to close at 86.5 sen.
EG Industries had last undertaken a corporate exercise last year. It included a rights issue of up to 129.43 million shares to raise up to RM64.7 million, along with a private placement of up to 9.17 million shares to raise RM6.9 million. The total expected proceeds of RM71.6 million were to be used for debt repayment and business expansion.
Tea said the group was actively diversifying its products by ensuring an integrated service for customers under its VI-plus strategy, which includes distribution in the Asian region.
It recently signed a two-year contract worth US$36 million (RM160.92 million) to manufacture Flic, a smart button, with Sweden-based Shortcut Labs AB. The deal would include distribution of the product in this region.
EG Industries chief executive officer and executive director Alex Kang said although the group was not familiar with distribution, it would leverage on the marketing and distribution expertise of WE Holdings Ltd.
WE Holdings has an indirect stake in EG Industries through Jubilee Industries Holdings Ltd, which held an 11.8% direct equity as at Oct 16. Tea is the executive chairman and managing director of Singapore-listed WE Holdings.
“Since we are already manufacturing for Shortcut, we feel we can handle its distribution in Asia, a region Shortcut is not exposed to. This is part of our VI-plus strategy to achieve by providing a one-stop service to our customers,” said Kang.
In the meantime, the group is on the lookout to partner or acquire an industrial design house to complete its VI-plus vision.
“We want to do an M&A (merger and acquisition) with an intellectual property company (industrial design house) in Europe where we are already negotiating with a few companies. This would complete our VI-plus vision where we can do our own design (original design manufacturing) in future,” Kang said.
Moving ahead, EG Industries, which targets a 30% contribution from its box-build segment to revenue for the financial year ending June 30, 2017 (FY17), has set an internal target of 20% to 30% increase in its bottom line.
“We are currently facing some pressure from rising minimum wage costs and are also unclear about Bank Negara Malaysia’s forex (foreign exchange) policy [which requires exporters to convert 75% of their proceeds into ringgit] that could hurt us in terms of hedging.
“However, internally, we want to grow our bottom line by 20% to 30%. Our first quarter ended Sept 30, 2016 (1QFY17) results were also better than last year,” Kang said.
Net profit for 1QFY17 was up 41% to RM7.1 million or 3.38 sen per share from RM5 million a year ago. Revenue, meanwhile, rose 23% to RM234.7 million from RM191 million.
EG Industries said overall, the better performance was achieved on the back of higher sales and better margins generated from its box-build and consumer electronics segment, offset by higher labour cost arising from a revised minimum wage rate with effect from July 2016.