This article first appeared in The Edge Malaysia Weekly on November 6, 2023 - November 12, 2023

KLANG-based automotive replacement parts maker New Hoong Fatt Holdings Bhd (NHF) has set its sights on Vietnam and the Philippines to drive growth.

According to managing director Chin Jit Sin, the group is turning to the two emerging markets as they still have relatively low car ownership levels, suggesting significant growth potential as their economies expand.

“While we have been selling our products in these two countries, our market presence there is not substantial [yet]. Their numbers in terms of car ownership may also not be as impressive as those in Malaysia and Thailand, but there is promising potential. As their economies flourish, their population’s wealth will increase, leading to higher car ownership,” Chin, 61, tells The Edge in an interview. He has an 1.838% stake in NHF.

With a track record of over four decades in the auto parts industry, NHF is one of the country’s largest suppliers in the replacement equipment manufacturing (REM) market. The group manufactures over 3,300 in-house auto parts — including 1,200 metal parts and 2,100 plastic parts — and supplies more than 15,000 outsourced auto parts.

Chin observes that given the ongoing trade tension between the US and China, many businesses have been shifting their factories to Vietnam, which offers cheap labour. The Philippines, meanwhile, has also entered a new era under President Ferdinand Romualdez Marcos Jr.

“We believe Vietnam and the Philippines have stronger political stability compared with some other Asean countries such as Myanmar,” Chin notes.

Citing data from Asean Statistical Yearbook 2022, he says there are a total of 232 million registered motor vehicles on the road in Asean, of which 131.08 million are in Indonesia, 41.47 million in Thailand, and 32.38 million in Malaysia. “All these vehicles would require replacement parts and this is where our market opportunity is,” he adds.

Malaysia’s car ownership level remains high at 997.8 motor vehicles per 1,000 population, followed by Thailand’s 608.7 and Indonesia’s 485.1. In comparison, Vietnam, despite having a large population of 97.58 million, only has 4.18 million registered motor vehicles on the road. As for the Philippines, it has a slightly bigger population of 108.66 million and its number of registered motor vehicles on the road totalled 11.85 million.

Still, the motor vehicle ownership levels of both Vietnam and the Philippines — 42.8 motor vehicles per 1,000 population and 109 respectively — are nowhere near Malaysia, Thailand and Indonesia’s.

Looking beyond Vietnam and the Philippines, Chin believes the next two potential huge markets for NHF could be China and India, each of which has a population of 1.4 billion.

“We have been serving some customers in China and India, but our clientele base there is not big enough to spur growth. We are still trying to find ways to penetrate these two markets in a big way,” he says.

While competition in China is already intense, Chin believes that NHF will commit to delivering high-quality, premium products rather than engage in price wars that could dent the group’s margins.

“China is growing very fast, but the REM market there is very competitive. They have a lot of low-end cheap products. Thus, we are strategically approaching the Chinese market,” he says.

Chin was appointed executive director in 1998 and redesignated as the group’s managing director in 2007. NHF was founded in 1977 by his father-in-law Kam Lang Fatt, who died in 2008. Started as a trading company specialising in the REM, NHF ventured into manufacturing in 1989. The company was listed on the Second Board of the Kuala Lumpur Stock Exchange in 1998, before migrating to the Main Board — now known as Main Market of Bursa Malaysia — in 2001.

Today, Chin’s wife Kam Foong Keng is the executive chairman and single largest shareholder of the company. As at March 31 this year, NHF was 34.69% owned by Foong Keng, while her mother, Wong Yoke Len, had 13.35% equity interest.

Meanwhile, Yeoman Capital Management Pte Ltd — a Singaporean investment fund controlled by its co-founding CEO Yeo Seng Chong and his wife Lim Mee Hwa — holds a 7.77% stake in NHF.

The company distributes its products nationwide through local wholesalers and retailers while exporting to over 50 countries across Asia, Central and South America, Europe and Africa through overseas distributors.

“Our main focus has always been the Southeast Asian markets because we believe the growing pool of cars on the road drives demand for automotive parts,” says Chin.

NHF has an installed capacity to produce up to six million auto body parts per year. The products include air conditioning parts, hoods, doors, bumpers, windscreens, door mirrors, filters, fan blades, radiators, light-emitting diode lamps, headlights and tail lights.

“We have been selling about five million parts a year and we are quite comfortable with the current factory utilisation rate,” says Chin.

NHF’s headquarters and manufacturing facility in Klang are equipped with a 3D imaging scanner, metal inert gas (MIG) robot, plastic injection machine, 3D laser welding and cutting machine. The group also operates trading branches in Jakarta, Indonesia and Shanghai, China, as well as Kota Kinabalu, Sabah, and Segambut, Kuala Lumpur.

“We can export containers to any province in China, there is no restriction. But for Indonesia, we are not allowed to directly export our products to, say, Medan or Kalimantan. That’s why our warehouse in Jakarta is very important as it serves as a hub,” Chin explains.

Shares of NHF have climbed 45% since January last year to close at RM3.03 last Wednesday, giving it a market capitalisation of RM250.5 million. Still, the cash-rich manufacturer is trading at a trailing 12-month price-earnings ratio (PER) of about six times.

In comparison, its peer APM Automotive Holdings Bhd, whose share price has risen 12.4% year to date, is trading at a higher historical PER of around 14 times. 

APM Automotive is run by the Tan Chong family, which also controls Tan Chong Motor Holdings Bhd, the Main Market-listed franchise holder and exclusive distributor of Nissan passenger and light commercial vehicles, as well as Renault vehicles in Malaysia. 

Meanwhile, auto parts maker and distributor EP Manufacturing Bhd is trading at a PER of nine times and automotive leather upholstery producer Pecca Group Bhd is trading at 25 times.

Chin is of the view that NHF’s shares are underappreciated by investors. “We would like to think that our shares are undervalued. Sometimes, it’s about market perception. But as our business and results improve, we believe the investors will start to realise our growth potential.”

He points out that NHF’s dividend payout has been increasing in recent years, while its cash position remains strong.  As at June 30, NHF’s net cash position was at RM91.9 million, equivalent to RM1.11 per share based on an issued share capital of 82.7 million shares. 

“Being a 46-year-old company that was listed 25 years ago, our market capitalisation has grown over four times and we consistently deliver good results. Since our listing, we have been constantly paying dividends, even during the pandemic years,” he says. 

NFH’s dividend per share increased from eight sen in the financial year ended Dec 31, 2020 (FY2020) to nine sen in FY2021 and 13 sen in FY2022, when it achieved its highest-ever revenue of RM290.4 million, of which 56% came from Malaysia, 18% from Asean, and 26% from non-Asean countries. 

The group’s net profit grow 36% to RM26.7 million in FY2022 from RM19.6 million in the previous year. For 1HFY2023 ended June 30, it posted a net profit of RM30.7 million, surpassing its annual profit the year prior. 

The strong earnings were attributed to improved margins and foreign exchange gain. NHF’s net margin has also been widening, from 4.88% in FY2020 to 8.02% in FY2021 and 9.2% in FY2022, and improving further to 21.5% in 1HFY2023.  

The ringgit had depreciated from 4.02 against the US dollar at end-2020 to 4.17 at end-2021, before weakening further to 4.40 at end-2022 and 4.66 at end-June 2023. The stronger greenback amid the US Federal Reserve’s hawkish stance on interest rates generally bodes well for export-oriented companies like NHF. 

“We are always on the lookout for opportunities. But we are also mindful that whenever we venture into new markets, there will always be business risks. One thing is for sure, NHF will never stand still,” says Chin. 

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