Success Transformer to focus on organic growth in overseas markets

Written by Loong Tse Min
Monday, 12 July 2010 11:08


KUALA LUMPUR: Success Transformer Corp Bhd (STC) aims to focus on organic growth in its expansion in East Africa and Oceania as it sets up subsidiaries in the two regions.

Last month, STC which manufactures low-voltage transformers, industrial lightings and process equipment, announced the incorporation of a 51%-owned joint-venture company Nikkon Success Kenya Ltd in Kenya. The month before, it set up a wholly-owned subsidiary, SE Oceania Pty Ltd, in Australia.

“Basically, the group will stay focused to continue its organic growth and both (subsidiaries) will provide us the opportunity to expand our business and market distribution to the East Africa and Oceania markets for our manufactured products,” said Who Way Cheang, STC’s executive director.

Nikkon Success Kenya will be the vehicle for expansion for all of East Africa and not just in Kenya, he said.

Initially, STC will introduce its lighting and electrical products to Kenya.

“We will export our electrical components to Kenya including lighting and electrical fixtures, street lighting and all lighting-related products,” said Woh.
Analysts have reported that the group’s management sees huge potential in the African market.

“Geographical expansion into new markets including Oceania and Africa will provide growth impetus for its transformer and lighting divisions. Based on guidance, management sees huge latent potential from Africa in terms of sales and profitability,” said the latest Kenanga Research report on the company dated May 25.

Kenanga has a buy call on STC with a 12-month target price of RM1.55.

“We have a positive outlook (on the African market). Currently, it is too early to estimate annual growth,” Woh said in his email reply to questions from The Edge Financial Daily.

As for targeted market share, Woh said: “We reserve our comment in this early stage regarding the market share.” He added that the company did not consider Africa a volatile and risky market.

STC planned to grow its overseas markets “by applying new production technology to achieve cost improvement and to launch more products”.

The company’s strategy for growth in Oceania would be to expand distribution channels for its manufactured products through its wholly owned Australian subsidiary. The same strategy would be applied to the African market through its Kenyan joint venture, said Woh.

The company successfully listed its 65%-subsidiary Seremban Engineering Bhd (SEB), on May 10. Among the items manufactured by SEB are unfired pressure vessels, heat exchangers, tanks and silos.

For its first quarter ended March 31, 2010, SEB posted a net loss after minority interest of RM266,000 on the back of RM6.35 million in revenue compared to a net profit after minority interest of RM2.28 million in the same period a year earlier on revenue of RM18 million.

SEB attributed the loss to lower sales recognised in the quarter.

Woh said SEB’s financial performance would improve from the third quarter “with completion and deliveries of secured job orders in the coming quarters”.

Meanwhile, STC has been buying back shares since the start of this year, bringing the cumulative net outstanding treasury shares to 6.45 million as at July 8. In comparison, as at Jan 26 this year, the company held 360,400 shares in treasury.

On the rationale for STC’s share buyback, Woh said: “The share buyback allows us a few options. However, plans are not finalised yet.”

As to whether the company intended to make a bonus issue in the future, he said: “Possible.”

STC shares ended unchanged at RM1.20 last Friday on thin volume of 20,500 shares, while SEB shares inched up 0.5 sen or 0.75% to 67 sen on volume of 36,700 shares.



This article appeared in The Edge Financial Daily, July 12, 2010.