This article first appeared in The Edge Malaysia Weekly on October 21, 2024 - October 27, 2024

MCE Holdings Bhd (KL:MCEHLDG), a manufacturer of automotive electronic and mechatronic parts, has set a bold target for its third manufacturing plant in Serendah, Selangor, which is expected to commence operations in the second half of next year.

Phase 1 of the new plant — currently under construction with a built-up area of 117,000 sq ft — will focus on the production of advanced electronic and mechatronic parts. This expansion will more than double MCE’s current production capacity.

Upon full completion by 2035, the Serendah plant is expected to rake in annual revenue of RM500 million, while MCE’s existing two plants in Johor Bahru (Johor) and Klang (Selangor) are forecast to contribute RM200 million.

“The new plant will be our growth engine. We want to complete the entire expansion by 2035 with a total built-up area of 500,000 sq ft. Once the plant is ready, we are looking at [pulling in] RM500 million in annual revenue from it. So, all in all, we are looking at revenue of RM700 million for the group,” MCE managing director Dr Goh Kar Chun tells The Edge in an interview.

“Our land size is 8.3 acres. We are using one-third of the land to build this factory, with an investment cost of RM50 million. So, we still have two-thirds of the land for future expansion,” he says, adding that the new plant will enable the group to cater more for the needs of its international customers.

“As we move up the value chain, the product sophistication levels will be higher. We need a better and more advanced manufacturing plant to support this activity. For example, the factory has to be dust-free, with electrostatic discharge floors.”

The group is involved in the supply of products that enable autonomous driving (sensors and cameras) as well as car infotainment. “These are very complicated systems, so we are already transforming our product technologies into that,” he adds.

MCE’s product portfolio includes anti-theft keyless entry systems, plastic parts, interior and exterior lamps, functional switches, power window regulators, camera systems and digital video recorders (DVRs), and parking sensor systems.

While the domestic market accounts for 93% of the group’s total sales, Goh expects contribution from the overseas market to continue increasing. “We will push for more exports, and we are already growing quite well with Toyota under the global Toyota platform. Apart from that, we have received serious enquiries from the overseas market. We are confident that we will be able to secure some of [these contracts].”

Besides Malaysia, its core markets also include Thailand, Indonesia and Saudi Arabia.

This year alone, MCE has bagged multiple contracts from Proton and Perusahaan Otomobil Kedua Sdn Bhd (Perodua), particularly a RM19.6 million three-year contract to supply electronic and mechatronic components for Perodua’s first electric vehicle (EV). The components include multimedia display units, instrument panel clusters, advanced driver assistance systems, functional switches and interior lightings.

MCE, which is mainly involved in the original equipment manufacturer (OEM) business, is diversifying into the replacement market. “We have been appointed by Nasdaq-listed Dorman Products Inc for the supply of aftermarket products. We are now at the design stage. We will start supplying to the company from 2025,” says Goh.

“For the replacement market, we have picked the US instead of the local market because the replacement market there is huge. The culture in the US is also very different whereby they like to DIY. The people there buy the auto parts and fix their own cars.”

He reveals that the partnership with Dorman came about partly due to geopolitical tensions, which have prompted North American players to look for suppliers outside of China.

Meanwhile, Goh does not rule out the possibility of entering the US OEM market. “We do receive quite a number of enquiries related to the US OEM business. We are pretty hopeful that we will eventually be able to penetrate that market as well.”

On the EV trend, he says these vehicles require more electronic components, “so our products — sensors, cameras, lighting — would naturally see a higher demand”.

With more auto players having a presence in Malaysia, Goh believes this will create more business opportunities for the group. “[Foreign auto players] will need to engage vendors like us to increase their local content in terms of auto localisation.”

For the financial year ended July 31, 2024 (FY2024), MCE’s net profit increased 3.7% to RM16 million from RM15.4 million a year ago, after net earnings in the fourth quarter jumped 40.7% year on year to RM4.14 million from RM2.94 million, on the back of lower direct costs resulting from enhanced operational efficiencies.

The group reported annual revenue of RM155.66 million for FY2024 compared with RM154.89 million for FY2023. In FY2024, it paid a dividend of three sen per share against 5.5 sen per share in FY2023.

“With the expansion of our workforce following the launch of the MCE Auto Hub — that is, our new plant in Serendah — we may experience some short-term margin fluctuations due to the upfront costs. Nevertheless, we aim to maintain a margin of around 10% for FY2025.

“This sort of profit margin is proof of the effort that we have put into design, development and engineering, and shows our ability to run in-house production efficiently,” says Goh.

He expects the group to achieve a 5% to 10% growth in both revenue and profit for FY2025, driven by the optimisation of its existing capacity.

Goh points out that MCE’s niche is its ability to provide customised solutions to automakers as it has an R&D team. The group has more than 60 experienced engineers with over 10 years of experience on average.

“Our philosophy has always been in-housing, not outsourcing. We believe that we must build our competency in manufacturing to maintain control over quality, supply chain and cost,” he adds.

Last May, Brahmal Vasudevan of private equity firm Creador surfaced as MCE’s substantial shareholder after raising his stake in the group to 5.02%. This prompted its share price to surge to RM2.15, its highest level in about two decades.

Over the past year, the stock had risen 70% to close at RM1.55 last Wednesday for a market value of RM194 million.

As at end-July 2024, MCE was in a net cash position of RM1.43 million, with RM15.83 million in bank and cash balances, and RM14.4 million in gross borrowings.

Listed on Bursa Malaysia in 1996, MCE was founded by the Goh family. Its subsidiary Multi-Code Electronics Industries (M) Bhd, was set up in 1990 and is involved in the production and sale of car alarm systems, central locking systems and power window regulators.

The Goh family has since pared its stake in the group, resulting in Dulcet One Holdings Sdn Bhd emerging as its largest shareholder in March 2021.

Currently, Dulcet One holds 19.1% equity interest in MCE, while Goh has a 4.73% stake. Goh, who holds a Bachelor of Medicine, Surgery and Obstetrics from University College Dublin in Ireland, was appointed to the MCE board in June 2016.

Separately, MCE is in the midst of selling its land in Setia Alam, Selangor, which had been earmarked for a hospital. The group aborted the healthcare venture when its auto business saw an improved performance, after having made losses between FY2018 and FY2021 due to the decline in sales volume in the auto industry.

“We are at the final stage of disposing of the land. Both the buyer and seller have already fulfilled the condition precedent. It should be completed by November this year,” says Goh.

The RM43.69 million proceeds from the disposal will be used to fund its auto business.

Nevertheless, Goh says the group is still on the lookout for business opportunities that are export-oriented as well as complements and adds value to its auto business. 

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