Financial Highlights

• The revenue decreased from RM 44 mil (FYE 2019) to RM 25 mil (FYE 2020), increasing again to RM 33 mil (FYE 2021) and RM 49 mil (FYE 2022).
• The gross profit margin is not growing consistently, however, the average GP margin is above 25% still considered a good GP margin. (Generally, a GP margin of 20% is considered high/ good).
• PAT margin decreased from 16.57% (FYE 2021) to 11.78% (FYE 2022).
• The gearing ratio is 0.31 (FYE 2022) which is under a healthy range (A good gearing ratio should be between 0.25 – 0.5).

Major customer and Supplier

Major Customers

The products and services are distributed to the water, wastewater and oil and gas industries. The customers include:

• Water authorities, water operators and wastewater treatment operators;
• Contractors for water and wastewater treatment plants;
• Intermediary customers; and
• Oilfield equipment and service companies.

The top 5 major customers for the FYE Under Review are as follows:

According to the details, the top 5 customers are around 67%. The company might be involved in the risk of concentrating on customers; the top customer contributes the majority of the revenue of the company. However, the company mentioned they are mindful of the risk of reliance on a handful of major customers, and they are implementing strategies to diversify the customer base. For example, they are working to improve the design and quality of its lamella plates to increase the customers‘ confidence in its product, emphasising research and development efforts to introduce newly fabricated metal products for existing and new customers, and increasing the marketing efforts to secure more instrumentation services projects as well as increasing the sales for telemetry products.

Major Suppliers

The Group’s top 5 major suppliers for the Financial Years Under Review are as follows:

According to the details, the top 5 suppliers are around 75%. The top 1 supplier contributes 38.18% out of all purchase contributions. The company mentioned they are dependent on Siemens Malaysia for the supply of its fluid control products for its distribution segment. If Siemens Malaysia decides to terminate the partnership in the future, it will have a material impact and effect on the group distribution business performance and financial conditions. Therefore, the company might have to include this as a risk because it will directly impact the company's financial results.

Industry Overview

Electronic Flowmeters

The demand for water has increased in tandem with the growth of the population in the country and improvements in the standards of living, as well as expanding agriculture and industrial developments. Opportunities are present for suppliers of electronic flowmeters when more water projects such as the upgrading and building of water treatment plants and the replacement of aging water pipes are commissioned, as well as the Government's intention to lower the national NRW level to 25% by 2025.

In addition to the electronic flowmeters for the original equipment market, which refers to the equipment installed during the construction of new water infrastructure facilities and new commercial and industrial properties; demand is also generated in the replacement market, as electronic flowmeters also have a finite lifespan. The market size for electronic flowmeters in Malaysia is anticipated to increase from RM99.8 million in 2021 to RM190.7 million in 2025, generating a CAGR of 17.6%

Metal Frames for Shaker Filters

The level and direction of crude oil and natural gas prices are key determinants of performance for shaker filters. The supply chain disruptions as a result of the Russia-Ukraine conflict that broke out in early 2022, have also led petroleum companies to increase their exploration and production activities. Globally, the market size for metal frames for shaker filters are expected to expand from 6,210,000 pieces in 2021 to 7,544,418 pieces in 2025, yielding a CAGR of 4.9%.

As more and more governments around the world are focusing on a low-carbon future, the outlook for crude oil demand has shifted lower. However, it is still crucial to invest in the upstream sector even during transitions to a low carbon future, as it would still take many years to shift global transport fleets to electric vehicles and other low carbon alternatives. Some end-user industries such as aviation, shipping and petrochemicals will continue to rely on crude oil for some time due to a lack of viable and cost-effective alternatives. Both crude oil and natural gas are widely used in the manufacturing of petrochemicals, which cover more than 8,000 compounds in commercial production. The demands petrochemicals is ever expanding due to new technological discoveries. The manufacturing of petrochemicals remains a pillar of growth in the oil and gas industry.

Source: Infobusiness research

Business strategies and prospects for COSMOS TECHNOLOGY INTERNATIONAL BERHAD

The Group’s business strategies and future plans are set out below:

1. Acquisition of the New Building
2. Purchase of new machineries

MQ Trader View

Opportunities

1. Good performance gross profit margin. The company's average gross profit margin with the last 4 years results is over 25% of gross profit margin. This shows that the company has higher pricing power.

Risk

1. Concentration on customer risk. The top 5 customers contribute 66.88% of the total revenue, this will impact the client revenue if any of the top customers do not need the service anymore. However, the company mentioned they are trying to diversify the customer base, so we will refer to the future annual report to confirm the risk is decreasing.
2. The company is dependent on the supplier. The company mentioned they are dependent on their supplier, Siemen Malaysia, and if Siemens Malaysia decides to terminate the partnership in the future, it will have a material impact and effect on the group distribution business performance and financial conditions.
3. The company is subject to the availability and volatility in prices of raw materials and supplies. The Group’s raw materials mainly consist of steel materials used in the manufacturing of fabricated metal products. The raw materials are mainly sourced locally. The price of raw materials fluctuates in accordance with the global steel prices in the market.

Click here to refer the IPO - Cosmos Technology International Berhad (Part 2)

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