This article first appeared in The Edge Financial Daily on May 26, 2017 - June 1, 2017

KUALA LUMPUR: MBM Resources Bhd hopes to turn its loss-making automotive parts manufacturing division profitable by the end of the current financial year ending Dec 31, 2017 (FY17), by improving the efficiency of its alloy wheel plant operations.

According to the auto retailer and parts manufacturer’s president and chief executive officer Nor Hadi Daud, losses incurred at OMI Alloy (M) Sdn Bhd’s alloy wheel plant in Rawang, Selangor, have put a drag on the auto parts manufacturing division’s performance.

Despite higher revenue and production in the first quarter ended March 31, 2017 (1QFY17), the segment’s pre-tax loss widened by 40% to RM6.28 million in 1QFY17, from RM4.49 million in 1QFY16, primarily due to losses incurred at the alloy wheel plant.

“Our auto parts manufacturing losses were mainly driven by [losses incurred at] our alloy plant operations, which currently have a high rejection rate [of alloys],” he told reporters after MBM Resources’ annual general meeting yesterday.

Nor Hadi said one of the ways the group is addressing the issue is by reducing the rejection rate of its alloy products at the alloy wheel plant by half, from almost 40% in 1QFY17.

He added that it is targeting to further lower the rejection rate to 10% over the next six months in order to improve cost management of the plant.

“Reducing the rejection rate of our alloys is not something that can be done overnight, particularly when reducing the percentage closer to 10%, but we target [for] this to be done over the next six months,” Nor Hadi added.

Nor Hadi noted that reducing the rejection rate of alloys is not the only way to curb the segment’s losses, adding that it is also important to have the requisite volume of alloys, as well as the necessary technical expertise required, in order to improve the overall efficiency of output at the plant.

“We would also need to bring in a higher volume [of alloys] by working with [parties or manufacturers] who can provide us with both the appropriate volume of alloys needed as well as the technical assistance necessary to [increase the efficiency of our plant],” he said.

MBM Resources shares closed up one sen or 0.41% at RM2.43 yesterday, giving it a market capitalisation of RM938.13 million.