Financial Highlights

The key financial highlights based on the historical financial information of the Group for FYE 2019 to FYE 2021, as well as for the FPE 2021 and FPE 2022 are as set out below:

• The revenue grows from RM 43 mil (FYE 2019) to RM 344 mil (FYE 2021). This shows that the company is expanding its market share in the sector.
• The gross profit margin grew from 7.9% (FYE2019) to 19.3% (FYE2020) and declined to 12.2% (FYE 2021). The reason that cause a decline in FYE 2021 is because of the smart utility data collection equipment as a result of the sales and final delivery of the low-margin older model products to SOQ, also partly due to the higher GP contribution from the lower margin consumer electronic products namely household appliances, and affected by the increase in aluminum prices.
• PAT margin declined from 8.8%% (FYE 2019) to 7.6% (FYE.2021).
• The gearing ratio is 0.9 times (FYE 2021), and the company’s gearing ratio is over the healthy benchmark of 0.25 ~ 0.5. (A good gearing ratio should be between 0.25 – 0.5).

Major customer and Supplier

Major Customers

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

According to the details, we know that the top 5 customers contribute 85.9% of the revenue to the company. Although each of the clients is nearly around 15 ~ 20% of the revenue contribution. However, the company still faced high-concentration customer risk because if any 2-3 clients terminate the relationship, the company revenue will decline by at least 25% or above.

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 supplies are 74.7% of the purchases. The company mentioned they are not dependent on its major suppliers. As an EMS provider, they source some of their input materials from various suppliers as mentioned above. In the event that the input materials are not available from these approved suppliers, the company will source the materials from alternative suppliers in the industry. They need to obtain prior approval from the customers before purchasing from alternative suppliers, who have yet to be approved by the customers. The company maintains a list of approved suppliers, apart from the major suppliers set out above, which have been approved by the customer. Hence there is no dependency on any major supplier.

Industry Overview

According to Vital Factor Consulting’s research, Malaysia’s exports of E&E products amounted to RM456.0 billion in 2021. The E&E industry continues to be Malaysia’s major export earner which accounted for 36.7% of the total value of gross exports in 2021. In 2021, the value of gross exports of E&E products increased by 18.0% compared to the previous year, mainly as a result of robust demand for semiconductors due to increased remote working and learning as well as business digitalization (Source: Minister of International Trade and Industry). Between 2019 and 2021, Malaysia’s exports of E&E products increased at a CAGR of 10.5%. In 2021, the four largest export destinations of Malaysia’s E&E products were Singapore, the US, Hong Kong and China, which collectively accounted for 60.9% of the total exports of E&E products.

Between 2019 and 2021, exports of E&E products to Singapore and the US increased at a CAGR of 19.2% and 14.1% respectively. In 2021, the exports of E&E products to Singapore increased by 23.0% and remained the largest export destination for Malaysia’s E&E products. Singapore is a major global hub for semiconductor and electronics manufacturing services as well as the supply chain for products ranging from storage and memory products to microelectromechanical systems. In 2022, the global demand for E&E products is projected to be strong amid the drive for digitalization and automation (Source: Bank Negara Malaysia). For the first 9 months of 2022, Malaysia’s exports of E&E products grew by 35.4% compared to the first months of 2021, amounting to RM 438.5 million.

The market size of CAPE EMS BERHAD:

Source: Vital Factor Consulting

Business strategies and plans for CAPE EMS BERHAD

1. The company plans and strategies are as follows:
2. Setting up of Tebrau 6 Factory for aluminum die-cast manufacturing;
3. Construction of New Senai 226 Warehouse and installation of the automated storage facility;
4. New production facilities for EMS operations; and
5. Additional factory floor space for EMS operations;

MQ Trader View

Opportunities

1. The company has a full plan for its direction. As the company plans to expand the warehouse and increase the production line, this shows that the company still has room to grow.

Risk

1. The company faced high-concentration customer risk because they are dependent on the following major customers whose sales collectively contribute a significant portion of the revenue.
2. The company is involved with high debt. The gearing ratio for FYE 2021 is 0.9 times. Therefore, any increase in interest rate may impact the company's financial performance.

Click here to refer the IPO - Cape EMS Berhad (Part 1)

Click to know more on Highlighted Q&A

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