13 Mar AT Systematization Banks on Global Textile Machinery Maker
LOSS-MAKING AT Systematization Bhd (ATSB) is hoping to return to the black by financial year ending Feb 28, 2018 (FY18), with its joint-venture company securing new orders from a leading global textile machinery company. “We hope to break even or register a profit by FY18,” executive director Mak Siew Wei tells Focus M.
ATSB, which is involved primarily in fabricating industrial and engineering parts for various industries, saw its bottom line hit in FY16 due mainly to declining orders from a major customer in the hard-disk drive industry. It incurred a neet loss of RM 2.54 mil from a net profit of RM 713,000 in FY15. However, Mak says the losses will be mitigated withh ATSB tapping further the textile industry through its joint-venture company, Fong’s & AT Venture Sdn Bhd (FATV). FATV is 75% owned by ATSB and 25% by Fong’s Engineering & Manufacturing Pte Ltd (FEM), a leading high-precision engineering company in Singapore. Under a purchase agreement signed in March, FATV will manufacture high-precision textile machine components like aluminium profiles for FEM for five years with an option for another year. The agreement came about after FEM negotiated a long-term agreement with one of its major customers. The Switzerland-based company listed on the SIX Swiss Exchange develops and manufacturers machhinery, systems and components used to convert natural and man-made fibers and their blends into yarns.
Minimum Purchase (B)
Mak didn’t disclose the name of the major customer due to non-disclosure agreements. However the major customer is believed to be Rieter Holdings AG, which is said to be the world’s leading supplier of systems for short-staple fibre spinning.
Mak says FATV will be guaranteed a minimum purchase of S$2.9mil (RM 8.7mil) anually for the first two years. With a 75% stake in FATV, ATSB’s share of thhat will be S$2.18 mil. He says the company expects to see a net profit margin of 15% once the gestation period is over. “We are looking at a cash flow break-even period of six to nine months.” Based on these numbers, FATV will contribute some RM1 mil in earnings to ATSB. Mak says FATV’s sales will be higher that the minimum guaranteed. “Based on our internal projections, we expect orders to be two to three times more than the guaranteed purchase amount. FATV could be contributing earnings to ATSB in the range of RM2-3 mil,” says Mak. He says FATV’s earnings contribution should kick in early next year once new machinery is installed at ATSB’s third factory in Penang, targeted to be done by year-end. ATSB has earmarked RM 8 mil from its right issue proceeds to acquire the machinery. Last week, ATSB secured shareholders’ approval to implement a one-for-two rights issue with one free warrant. The issue price of the rights has not been fixed, but Mak says at an illustrative issue price of hour sen per share, the rights issue could raise uup to RM30.39 mil. The exercise is expected to be completed by the third quarter. Part of the rights issue proceeds is for a RM2 mil solar photovoltaic (PV) plant on the rooftop of ATSB’s Bayan Lepas factory in Penang, ATSB had in March secured a feed-in approval for renewable energy quota allocation from the Sustainable Energy Development Authority Malaysia (SEDA). Mak says the 300kW plant is expected to generate a monthly income of RM 28,000. This is ATSB’s second quota allocation secured from SEDA. ATSB has an existing 425kW solar plant in Penang, generating about RM 45,000 monthly.
Both plants could contribute a combined annual earnings of RM 876,000 to ATSB.
Main Revenue. (B)
Currently, ATSB’s revenue is derived largely from hard-disk drives and semiconductor industries, which make up 75% of sales. Mak says the company’s largest customer is Western Digital Corp, which is experiencing a slowdown in its hard-disk drive sales. Western Digital is facing a polarising storage market. Lower-end drives face rapid price decline, and higher-end drives are losing market share to high-speed NAND-flash based solid-state drives in both the PC and enterprise segments. Mak says ATSB has been exploring new business opportunities in the medical and oil and gas industries to offset the lower demand. The company has identified producing precision components for brain surgery equipment, in particular equipment used in clot removal in the medical industry.