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Techfast bullish on its prospects
Ho Chung Teng 
The company has embarked on introducing new products which will propel the company’s earnings further
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HIGH-flyer Techfast Holdings Bhd is upbeat that its earnings can only improve further especially with the recent order from a US-based company to supply machining parts for the military and aerospace industries.

The company has also embarked on introducing new products to propel its revenue.

Yap says the company’s light-emitting diode epoxy encapsulants business recently secured new customers from the US and Germany

Group managing director Jason Yap Yoon Sing tells FocusM that its light-emitting diode (LED) epoxy encapsulants business has recently secured new customers – US-based Broadcom Ltd
and Germany-based Osram Licht AG.

Furthermore, he says that recently, Techfast also formed a new strategic partnership with a China-listed company to introduce clear Electro Magnetic Compatibility (EMC) for both the lighting manufacturers.

Clear EMC is a solid form of LED epoxy. At present, Techfast’s LED epoxy is in liquid form. Clear EMC is a product used by semiconductor original equipment manufacturers, such as Inari Amertron Bhd.

With its new orders and customers, Yap says Techfast is confident of achieving double-digit growth for the next few years due to its lower revenue and net profit bases.

 

Rising star?

At a period when the local bourse’s composite index is heading south, investors look for gems that buck the trend.

Techfast could well be one such company, with its share price having risen more than 400% since March.

On Oct 24, its share price hit a 52-week high of 83.5 sen and is on an upward momentum.

On Oct 6, Techfast announced a one-for-three bonus with the issuance of 57.04 million shares with its ex-date being Oct 19.

The company has been posting positive revenue growth for eight successive quarters. However, its quarterly profits are small.

For Q2 FY17 ended June 30, Techfast’s net profit increased 31.25% to RM819,000 from RM624,000 a year earlier.

In the same period, revenue increased 25.33% to RM6.87 mil from RM5.48 mil a year earlier.

The improved performance was attributed to higher sales of its self-clinching fastener, which has better profit margins and lower depreciation charges.

Techfast’s business is divided into three divisions – fasteners (via Techfast Precision Sdn Bhd), mould cleaning (Cape Technology Sdn Bhd) and LED encapsulants (Oriem Technology Sdn Bhd).

 

US revenue contribution

For its US military fasteners business, Yap says the deal was inked in June. Despite this, its revenue contribution is only expected to begin in December or January.

This, he says, is because the raw materials and machines required for the project need to be imported from that country, and are expected to arrive in November.

Techfast produces military enclosure electronics. Unlike other products supplied to the US military, Yap says his company’s product is not required to be audited by it (US military) as it is classified as a non-critical item.

He says unlike the self-clinching fastener, which retails for between five and 10 sen, the military sales margin is much higher, as it could be as high as 60 US cents (RM2.52) for one fastener.

Despite the high margins, Yap says sales quantities to the US military are not sufficiently large to make a huge impact on its bottom line.

“I like to run small volume businesses. Margins are very high and the market is a closed one. I believe if our quality can meet their expectations, then there is a good long-term outlook,” Yap says.

Exporters typically benefit under a weak ringgit compared to the US dollar.

However, the ringgit has strengthened against the US dollar in recent months, and this is unlikely to benefit export-based companies like Techfast.

The ringgit has strengthened to RM4.23 per US dollar on Oct 25, from a 52-week low of RM4.50 on April 1.

Moving forward, Yap says a plan is being put forward to change Techfast Precision’s business direction, to include trading in fasteners.

 

Moving into trading

At present, Techfast Precision is mainly a manufacturer and distributor of specialised fasteners and related precision turning and machining parts for the electronics, telecommunication, computer peripherals and automotive industries.

Yap now wants to be involved in the trading sector as well. “I’m taking [the Techfast Precision] business direction to another level.

“Actually, I started trading and find it is better as I can mark-up 20%, and have no cost. I can do it,” Yap says.

Techfast Precision was previously in a net loss position but turned around in FY16.

In H1, its net profit rose more than 11 times to RM725,000 from RM62,000 a year earlier.

“Next year, [Techfast Precision] could potentially record double-digit growth. Our base is still low, so it’s easy to double up,” Yap says.

On the forming of a new strategic partnership with a China-listed company to introduce clear EMC and the securing of new customers, Yap says contributions from new customers and products will only be realised in FY18.

This is because the original equipment manufacturers (OEM) require time to carry out customer acceptance tests. Nonetheless, future earnings prospects look good for Techfast.

“Even while the OEMs are carrying out their tests, there is still some small contribution [from the tests] coming in. And it should be higher next year,” Yap says.

Despite having a positive catalyst on its fastener and LED businesses, fund managers FocusM spoke to are keen on Cape Technology, a Techfast subsidiary.

Cape Technology is a manufacturer of semiconductor mould-cleaning rubber sheets. Its fortunes depend on the global semiconductor demand.

Techfast controls 90% of Cape Technology, the largest revenue contributor to it.

The Semiconductor Industry Association in a recent press release said worldwide sales of semiconductors reached US$35 bil in August, representing an increase of 23.9% compared with US$28.2 bil a year earlier.

The growing sales place Cape Technology in a solid position to increase its business.

A fund manager says the semiconductor market for the automotive and industrial sectors has significant growth potential.

With a production capacity of 25 tonnes per month, it is estimated that about 80% of semiconductor players in Malaysia use Cape Technology’s mould-cleaning rubber sheets.

Its customers include Carsem (M) Sdn Bhd, Infineon Technologies (Malaysia) Sdn Bhd and Vishay Semiconductor Malaysia Sdn Bhd.

 

Export business

For its export business, Yap says talks are ongoing with China’s Tianshui Huatian Technology Co Ltd, as a distributor into China. The expected orders from Tianshui amounts to around five tonnes monthly.

Currently, Cape Technology has no significant orders from China, where total market demand for mould cleaning is just 150 tonnes monthly.

The company has appointed two agents for the Taiwanese market. Yap believes this will help it secure sales of between 10 and 15 tonnes monthly.

Prior to the distributorship, Cape Technology only exported two tonnes of its product to Taiwan. The demand from the country is forecast at 30 tonnes monthly.

Moving forward, Yap says Cape Technology plans to expand to the secondary market, especially to China, by converting current manufacturers into traders.

He says Cape Technology’s product is sold in the market at about US$10 per kg.



This article first appeared in Focus Malaysia Issue 256.