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SMIS Corp targets turnaround in FY18
Ho Chung Teng 
A fund manager says SMIS Corp could be dragged by the ongoing weak vehicles sales
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AUTOMOTIVE interior furnishing and components supplier SMIS Corp Bhd slipped into the red in FY16 ended Dec 31, marking its first net loss in five years.

However, while the company is committed to turning around in FY18, not many are convinced.

A fund manager says SMIS Corp could be dragged by the ongoing weak vehicles sales.

“It also depends on how soon its Indonesian operations pick up and how the ringgit performs against the US dollar,” he tells FocusM.

The fund manager says the ringgit’s volatility against major currencies such as the Japanese Yen and US dollar will also affect the automotive vendors’ margins.

As such, companies such as SMIS Corp may find it challenging to improve earnings.

“Automakers like Perusahaan Otomobil Kedua Sdn Bhd (Perodua) are still cautious about the local automotive sector.

“Production volume for Perodua has declined. This shows it is expecting lower sales this year and is also carrying over stocks from the previous year,” the fund manager says.

Perodua had recently targeted a lower total industry volume (TIV) production for this year to 197,000 units from 213,000 units last year.

As it is, the automotive TIV production has been declining since 2015. TIV production for the first half of 2015 was at 327,664 units.

It continued its downward trend to reach 255,318 units in the recent six months ended June 30, a decline of 2.9% from 262,963 units a year earlier.

However, automotive TIV sales rose 3.26% to 284,461 vehicles for the six months from 275,459 units previously.

The poorer performance of SMIS Corp did not go unnoticed by shareholders, and company directors were asked to explain its dismal financial performance.

The automotive component manufacturer reassured them that it will turn the corner in the next financial year.

For Q1 FY17 ended March 31, SMIS Corp’s net losses narrowed to RM762,000 from RM1.28 mil a year ago, despite reporting an improved revenue of RM36.41 mil.

The company attributed the improvement to its automotive parts segment, but its margins were affected due to the weaker ringgit which resulted in material cost increases.

SMIS Corp also cited depreciation charge, product mix and production trials for new parts as reasons for its losses.

While it recorded a net profit of RM492,000 and revenue of RM143.27 mil in FY15, the company registered its first net loss in five years of RM3.16 mil last year as revenue fell to RM139.78 mil.

In its latest annual report, the company says while TIV in the automotive industry fell, revenue derived from or related to it remained relatively similar to the previous year.

Thus, it reasons that it was affected by the ringgit’s depreciation, which resulted in significantly higher import costs for parts.

Nevertheless, it does not expect its market share to significantly fall and is confident it will be maintained.

SMIS Corp customers include Proton Holdings Bhd, Honda Malaysia Sdn Bhd and Perodua. 

Meanwhile, the Malaysian Automotive Association expects July sales to be similar to the previous month’s numbers due to uncertainties arising from the liberalisation of motor insurance from July this year.

Maybank Investment Bank Bhd says in a recent report that June TIV production was a sea of red as all major marques saw double digit contraction in vehicle production, due to the Hari Raya holidays.

“We understand that some assembly plants were closed for up to a week during the month. Nonetheless, we note that June TIV production was also at a six-year low since 2011. 

“We expect a rebound in July TIV production from a low base, as it normalises on a longer working month,” the research house says.

Maybank is also expecting strong TIV sales in H2, backed by year-end sales campaigns and mass-market launches. It forecasts a TIV sales of 610,000 units this year.

Earlier in the year, SMIS Corp established two new subsidiaries in Indonesia as it supplies products to that country and Thailand as well.

The company says its Indonesian venture fits its long-term strategy, and it is positive of the potential and opportunities available there as the Indonesian automotive industry has shown consistent growth.

SMIS Corp says its Indonesian operations helps ensure it takes part in that country’s automotive sector growth while providing synergies to its Malaysian operations as it bids for new business presented by common platform vehicles in Asean.

But a local investment bank analyst says SMIS Corp’s Indonesian expansion may have come a little too late.

He says the automotive industry in Southeast Asia has matured, and that “players who are interested in Southeast Asia have already established themselves”.

However, Frost & Sullivan is more positive. It forecasts Indonesia’s vehicle sales to reach 1.1 million units this year, representing a 5% growth. 

This comes as Indonesia’s economy is forecast to recover from the prolonged market slump plaguing it in previous years.

The company’s senior vice-president of Mobility Vivek Vaidya says this year, the Indonesian economy will be healthier resulting from positive consumer sentiment, the growth in private investments, robust government spending and revival of exports.

Vaidya says  Indonesia’s economy will be healthier this year

“We expect to see a clearer picture and direction in the development of the Indonesian automotive industry this year, over the short- to medium-term, with the finalisation of several key regulations such as the low carbon emission programme and the automotive industry roadmap,” Vaidya says.

Among the catalysts that will propel Indonesia’s automotive market are the launches of key models in H2, promotional campaigns and motor shows in various cities.

SMIS Corp established PT Sanyco Grand Indonesia and PT Grand Ventures Hartamas in Indonesia.

Sanyco serves to expand SMIS Corp’s braking component segment, while Grand Ventures will purchase 1.61ha in Kawasan Industri Terpadu Indonesia China, for IDR36.49 bil (RM11.93 mil), to construct factories.

A family-owned business

SMIS Corp Bhd started out as a family-owned business focussing on five industries – industrial machinery solutions, automotive brake and clutch components, plastic compounding, and automotive carpets and carpet trims for major vehicle assemblers.

It is co-founded by Tan Teck@Chin Sien Chin, Cham Bee Sim and Yap Siew Foong.

The company is now run by a mother and son team. Yap, 73, is the mother to SMIS Corp’s chairman and executive director Ng Wai Kee, 46, and sister-in-law to Tan and Cham.

Ng is responsible for the strategic direction and operational management of the company.

He is also a director with Malaysian Automotive Component Parts Manufacturers and has a 1.52% direct stake in SMIS Corp.

Ng also has an indirect stake of 37.18% in the company via MIYES Holdings Sdn Bhd.

Yap is the executive director of SMIS Corp and co-founded Machinery & Industrial Supplies Sdn Bhd. She is also responsible for the finance and operations of SMIS Corp’s trading division.

While she has a 3% direct stake in SMIS Corp, she also has an indirect stake of 37.18% in the company via MIYES Holdings Sdn Bhd.

Tan retired as SMIS Corp’s director in December 2003. He no longer has substantial shares in the company. Cham also retired from the board in October 2012. As of March 27, he has a 0.35% stake in SMIS Corp.

 



This article first appeared in Focus Malaysia Issue 246.