Main Market-bound Cape EMS Bhd has announced its initial public offering (IPO) price of 90 sen and an enlarged issued share capital of 923 million upon listing during its prospectus launch on Thursday (Feb 16). Here is the highlighted Q&A from the company management team (CEO, CFO, etc).

Here is the original transcript from the zoom meeting of RHB Research New IPO Briefing: CAPE EMS BERHAD (5311) on 21 Feb 2023

Q: Do you have any 3rd party social audits?

A: May I know what you mean by 3rd party social audit? As it does not have a social audit but only has an ESG audit or total audit. In this question, I believe you are asking about the hostel. We have only 82 foreign workers where with us for more than 5 years of 467 employees so all our hostels meet the highest requirement of our authority. The hostel is basically in compliance with the employee minimum standards of the Housing amenities Act 1990, so it is a certified hostel for the employees.

Q: Looking at your major customers combine part of them already make up close to 90% of your sales so how do you handle them? For example, keeping at the yet same time able to negotiate a reasonable margin as looking at this number they surely have enormous bargaining power as far as product pricing is concerned.

A: No, they don’t. Because our customers are well-diversified in different sectors, currently you can see that each sector has only 1 customer but our customers do understand that our policy, we will have more than 2 in any of the sectors they will be in. This is our policy and this policy has been highlighted and accepted by our customer. We will not have 1 customer policy. Thank you

Q: I believe your sales are all in USD and the USD being 55% of your market any significant hedging in place?

A: Our sales are mainly 90% in USD and now also our supply itself is around 80% to 90% in USD so we didn’t do any hedging instrument to hedge the foreign contract because we are a natural hedge, so we receive most of the collection in USD and we pay most of the payment in USD.

Q: What is your competitive advantage compared to the others EMS players in the market?

A: May I know who is the other EMS player that they are talking about I think whoever near us in Malaysia many of them are consumer electronics focus and for your information, we are 70% industry and only 30% percent consumer so this will be our policy as well so our niche is to build the best product with the most competitive price and time to market.

Q: Since you are increasing your production lines for your customer A which is the e-cigarette client so would we expect your contribution from consumer electronics to grow faster than your industrial electronics customer?

A; No, as I said to maintain 70% industrial and 30% consumer, that is our policy.

Q: Okay. The next question will be at any given time, especially after the reopening post-COVID-19, you’ve ever experienced shortages in terms of manpower in production?

A: I can start by that the shortage of talent and shortage of manpower is every manufacturer's headache but to be more precise this headache doesn’t bring us significant impact because we handle this with our high-skills engineering semi-automation, we try to bring our manufacturing with more efficiencies by adding in the extra automation process.

Q: Next question, from your export number at only 7%, clearly Europe is not really in your plan, any particular reason are you making more roots there as a matter of more market diversification perhaps?

A: Well, everybody knows that the Europe market is not that big now so I’d rather focus more on the Asian market instead of putting effort into to Europe market.

Q: Someone is asking if are you a shariah compliance company. If not why?

A: We are not. They know why because we have Customer A

** Customer A is an E-cigarettes company

Q: Why is the utilization rate of the current lines, how do you increase the contribution of the industrial products without a new line dedicated to that?

A: Before last year, our utilization until the 3rd quarter of last year, the utilization is around 70% to 75% but up to now we had successfully reduced the utilization rate to 46% and the bottom neck in our factory is actually the space for the logistic and also the warehouse, that’s why we are using our proceed to build the warehouse to serve the need of our incoming material and outgoing finish good and a kitting process so internally we had done a significance improve and we had already over our learning curve of manufacturing every sector of the product that we wanted to be in as such, we have reduced our utilization of the capacity and with that, we can increase even though double or triple our currents need of our industrial customer.

Q: Forward-looking, are you looking to expand into other industries beyond consumer electronics or industrial electronics for example medical

A: No

Q: May I know what is the utilization rate of your die-casting plant right now?

A: For internal usage, we are more than 50%, we also have our other customer that wanted to come in and we wanted to not only increase the utilization rate and also we wanted to improve our secretary process in our die casting division.

Q: Can I know your industrial electronic products and which of the product give you the highest GP margin?

A: Sorry, I cannot release this because you can see right now each factor we are in we have only 1 customer, I don’t want to invite a price war with my customer. Thank you.

Q: The overall utilization rate is below 70%, what is the factor that kept the utilization? How fast do you think you can increase your utilization lead back?

A: Once I got the warehouse ready I can double up our production.

Q: How fast can you go out of the 4 production lines for e-cigarettes? The new 4 production line.

A: This is stated in our prospectors, I think it’s the 2024 plan.

Q: I notice that Changhuat Plastic is top 5 of your customer in the years 2019 and 2020. Is Changhuat Plastic still your client now?

A: Is still our client but it’s become relatively small. It is not because they stop buying our product, is because other customers grow faster than them.

Q: For your tax rate, can we understand why the tax rate for your FY2022 is higher than the previous year, and then how could we expect going?

A: When we deal with customers, we start a lot of machines, so there is a tech reduction in 2020 and 2021. Going forward, we will be a normal tax rate of 24%.

Q: How quickly you can run out of a product from NPI to mass production?

A: Have to depend on what kind of product and how mature of mature the product is. what status we are with a product during the NPI. I think we do successfully launch a product within 3 weeks and we also have a product that 6 months still cannot launch.

Q: Do you have your order book amount?

A: Yes we did have the order book amount disclosed in the prospectors it’s 358.7 million and so forth generally towards 2023.

Q: The order book can last how long?

A: For your information, we have our rolling forecast every 3 to 6 months but our forecast comes in weekly so it’s not the order book last for how long, this is the order book we receive on confirmable by the forward generated 2023. This is announced in the prospector but we have a weekly PO upload onto the system.

Q: Do you affect by the minimum wage?

A: No, Johor Bahru always pays the highest as we have a rich neighbor.

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