Tuesday, June 21, 2011

Success ... Jun11

It will continue to look at mergers and acquisitions (M&A) to grow its transformer and lighting products manufacturing business. The company is also pursuing organic growth via the expansion of its capacity and geographical reach.

STC would consider viable M&A opportunities and these exercises could be financed via the issuance of new shares in STC and bank borrowings. However, funds earmarked for M&As would mean the company might allocate less money for dividends.

To expand the company’s geographical reach, it has plans to set up sales offices in Singapore, Europe and North America. STC currently has sales offices in Kenya and Australia. Overseas sales made up 13% of STC’s revenue of RM52.82 million in 1Q11 ended March 31 2011.

Since STC’s listing in January 2005, the company has embarked on acquisitions to grow its operations although not all are successful.

In December 2006, STC had acquired a 60% stake in Seremban Engineering Bhd (SEB) for RM14.63 million before securing the balance 40% for RM21.78 million in April 2008. STC now owns 65% of SEB following the listing of the latter in May 2010.

STC’s exposure to the oil and gas process equipment sector is via SEB which also manufactures process equipment for other industries such as palm oil, food and waste management.

In January 2011, STC had announced plans to acquire a 60% stake in Nexus Electronics Sdn Bhd for RM6 million. Nexus is a full-fledged manufacturer of transformers for electronic application and LED light modules. The exercise was terminated the following month as the buyer and seller could not agree on certain terms in the sale and purchase agreement.

In China, the company’s aluminium die casting and lighting products assembly facilities are already fully utilised. But the group had no intention of expanding the capacity of its China factories.

For its 1Q11, STC’s net profit remained flat at RM5.25 million compared with RM5.2 million a year earlier although its revenue expanded 34% to RM52.82 million from RM39.37 million. The process equipment segment in particular helped the company’s topline.

As the company sales are transacted in US dollars, the strong ringgit has eaten into its profits.

On the venture into process equipment for the oil and gas (O&G) sector, STC had begun talks with local O&G support services providers which could subcontract the jobs to the company.

However the firm was still fairly new in its O&G venture. As such, the company may not be able to secure significant projects in the short term. However, should the company perform well in the long run, it should be able to gain good exposure hence, a good track record to clinch more subcontract projects from larger O&G support services players such as Dialog Group Bhd and Kencana Petroleum Bhd.

STC’s new venture into process equipment for O&G, and its potential involvement in lighting products for the consumer market may serve as the growth catalysts.

SEB with an existing order book of RM50 million is tendering for about RM30 million worth of jobs.

SEB’s results for 1Q ended March 31 came in significantly better with a net profit of RM124,000 against a net loss of RM266,000 a year earlier as revenue more than doubled to RM16.49 million from RM6.35 million.

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