This article first appeared in The Edge Malaysia Weekly on December 2, 2024 - December 8, 2024

ELECTRONICS manufacturing services (EMS) firm Betamek Bhd (KL:BETA), known for producing electronic parts for Perusahaan Otomobil Kedua Sdn Bhd (Perodua), has started its diversification journey to achieve sustainable margins with a recent acquisition.

In an interview with The Edge, Betamek group managing director Mirzan Mahathir says diversification has always been the company’s goal since its initial public offering (IPO) to achieve stable margins. Its net profit margin for the financial year ended March 31, 2024 (FY2024) came in higher at 9%, compared with 7.9% in FY2023.

“Diversification is important, but we also need to make sure we have a good and strong business case when bridging new clients,” he says, adding that the company does not want to start a price war that could impact its margins.

In July, Betamek completed the acquisition of Sanshin (Malaysia) Sdn Bhd, which has a manufacturing plant in Sungai Petani, Kedah, for RM13.4 million. Previously owned by Tokyo-listed Outsourcing Inc, Sanshin manufactures car stereo and other electronic components for its markets in Malaysia, Japan, Hong Kong and Thailand.

Mirzan expects Sanshin to contribute about 25% to 30% to the company’s revenue in the next three years.

“We are currently putting in the system that we have developed at Betamek at the manufacturing plant in Sungai Petani. It’s already a running plant and the company we acquired has clients in the consumer electronics segment,” he says.

Founded more than 32 years ago, Betamek produced car audio systems for its export markets, mainly the US. Mirzan emerged as a major shareholder of the company in the early 1990s, around the time when Perodua started in 1993. He currently owns a 70.9% stake in Betamek via Iskandar Holdings Sdn Bhd.

“The first project we won from Perodua was for its first Kancil model. At the time, our business model was to bring new technology that was seen in luxury brands to affordable cars, which was in line with Perodua’s intention to differentiate itself by having new features in its cars. So, we introduced MP3 and Bluetooth functions and today, we have expanded to an infotainment system,” says Mirzan.

For the first half ended Sept 30, 2024 (1HFY2025), Betamek posted a 50% jump in net profit to RM15.34 million from RM10.46 million. In FY2024, its net earnings grew 23% to RM20.03 million from RM16.27 million a year earlier. The expansion to its bottom line was attributed to the strong sales of Perodua cars over the past two years, as 90% of its business is from the national car maker.

In the first half of 2024, Perodua sold 169,849 vehicles, a 17.4% jump from 144,690 units in the previous corresponding period. Last year was another record year for the automotive company as it sold 330,325 units, up 17.1% from 282,019 in 2022. Some 190,291 units were sold in 2021.

The concentration risk from having a single client could be a key factor in Betamek’s poor share price performance since April last year, despite its growing earnings. It was listed on the ACE Market of Bursa Malaysia in October 2022. The stock had declined 12% from its IPO price of 50 sen to close last Thursday at 44.5 sen, giving the company a market capitalisation of RM199.49 million.

The shares were trading at a 12-month trailing price-earnings ratio (PER) of 10 times, lower than that of its peer Pecca Group Bhd (KL:PECCA) at 18 times, but higher than that of APM Automotive Holdings Bhd (KL:APM) at 7.82 times.

Last year, Betamek explored diversifying into the healthcare and medical device sector. But Mirzan says it will take some time, perhaps three to five years, before the company goes into the sector.

“We were looking at niche [areas] where we can maintain our margins, [as] being a general kind of EMS company will basically drive margins down. [But] before we venture into a new area, we have to learn about it. It’s not like we can transfer all the skills that we have in one sector [to another],” he adds.

Betamek set up a research and development team last year to support its diversification efforts.

“To be agile, we need to be able to develop new products that are competitive, and we need to offer something different to the market. We always say we want to compete on values and I think that’s a better proposition for us and the clients,” he says.

Betamek is still focusing on the automotive sector, especially with the increasing adoption of electric vehicles (EVs).

Notably, Perodua is expected to launch its first EV model priced below RM100,000 before the end of next year. Mirzan reveals that the company is working closely with the car maker on its EV model, but was tight-lipped on the areas of cooperation.

He reckons that the adoption of EVs is a boon for Betamek as they require more electronic components. Having said that, he points out that the internal combustion engine (ICE) cars are also seeing an increase in electronic components.

In October, the company announced that its telematics system, which it co-developed with Perodua, can be used for both ICE cars and EVs. The telematics system offers a wide range of smart features, including remote control via a smartphone application.

Mirzan says Betamek has been collaborating with Perodua as well as Japanese marque Daihatsu to develop new products for the national car maker.

In July last year, Betamek secured a RM436.5 million contract to supply various electronics parts for Perodua’s new car model. The model has yet to be officially announced and the contract is expected to commence in 4QFY2025.

Mirzan points out that Betamek is in talks with other car makers to offer its services, especially newcomers to the Malaysian market, although nothing has been firmed up yet.

“When new vendors come in, there will be new models. It really depends on when those models will be introduced, so it is a long process,” he says.

He expects the automotive industry to remain robust in 2025, especially with the high order backlog for Perodua and the increased adoption of EVs in the country.

The Malaysian Automotive Association recently revised upwards its total industry volume projection to 800,000 units, citing robust demand for Perodua and Proton models. Perodua alone accounted for 100,000 units in backlog orders. 

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