18 Oct AT Systematization Ups Efforts To Return To The Black
Loss making AT Systematization Bhd (ATS) is hoping to claw its way back into the black in the medium term as the company invests to become a total solutions provider and work at expanding its customer base.
The precision tool maker believes that its recent investments in factory and machinery, focus on the global electronic manufacturing services market and venture into sheet metal fabrication will help it expand its customer base. “We have put in a lot of investment, such as a new building last year (to house new equipment), and we are bringing in a new business, sheet metal fabrication. “Our strategy is to expand our customer base and create a value chain to make ATS a one-stop solutions provider,” ATS managing director Choong Lee Aun tells FocusM .
The company is primarily involved in the manufacture of industrial automation systems and machinery, as well as the fabrication of industrial and engineering parts for various industries. ATS has been languishing in the red for three financial years, FY16, FY17 and FY18. The company changed its financial year end from Feb 28 to March 31 in February last year. Its troubles began when orders from its major customer, Western Digital Corp, started declining. The hard-disk player remains its largest customer, but since then the company has been trying to diversify its customer base. The company’s hopes to turn the tide in FY18 did not materialise despite signing up a prominent Swiss textile company, Rieter Holdings AG, in 2016 to produce its precision tooling components. Hopes are high. For Choong, who is a relatively fresh face to the ATS leadership team having taken the reins in December 2017, wants to turn its fortunes around. He and executive director Mak Siew Wei spoke to the media following the company’s recent annual general meeting.
Sheet metal fabrication
The diversification into sheet metal fabrication appears to be one of ATS’s key plans. In its 2018 annual report, the company explains that sheet metal products are widely used in various industries including electrical and electronics, oil and gas, telecommunications, consumer products and medical equipment. ATS says as it is already involved in the fabrication of various industrial and engineering parts, the group can leverage on its existing capabilities and know-how to run this new fabrication venture. The company has invested about RM4 mil in machinery and to expand its factory. Assembly of the machinery was recently completed and it is being commissioned. It will soon be ready for commercialisation. “We have already identified a few clients and we are looking at the first quarter of (calendar year) 2019 to start commercialisation. “(We are) looking at about a RM5 mil contribution in terms of revenue (from sheet metal fabrication orders) and hoping for about 20% compound annual growth rate (CAGR) over the next four to five years,” says Choong. ATS is also hopeful that its sheet metal fabrication solutions will open up the global electronic manufacturing services sector to it. The sector is expected to see strong growth in the coming years and ATS is hoping to tap the need for fabrication and automation solutions.
In its first quarter ended June 30. 2018, ATS fell into the red with a net loss of RM1.38 mil from a net profit of RM122,000 a year ago on the back of lower revenue of RM4.63 mil from RM6.13 mil. ATS blamed the weaker performance on slower sales to its medical and semiconductor customers in its fabrication segment. Lower sales of solar energy equipment to Tenaga Nasional Bhd also took a toll on revenue. However, in FY18 the company appeared to be on a recovery path with stronger revenue of RM23.1 mil and lower net loss of RM5.63 mil, compared with the 12 months ended Feb 28, 2017 when revenue was RM15.33 mil and net loss RM9.05 mil. After three full financial years of losses, it is reasonable to question if some ATS shareholders are ready to cut their losses. Choong, however, believes that the company will continue to have the support of the majority of its investors. “I would say that a lot of them are aware about the new building and investments; they agree and are aligned (with the plans) for expanding the customer base and providing a value chain and total solutions (one-stop) centre,” he opines.
Aside from its sheet metal fabrication foray, ATS is also looking to contributions from its project with Rieter, which is said to be the world’s leading supplier of systems for short staple fibre spinning. ATS secured a 10-year contract with the Swiss company to produce its precision tooling components back in September 2016. However, it has had to endure a long approval period from Rieter for the parts it created for them. Mak explains that in deals such as this a 12 to 18 months gestation period is common because there it a stringent quality control process in place. While such a long gestation period may raise questions over the practicality of such deals, Choong explains that such projects usually translate into better margins versus those with a faster approval time. This is particularly true for large multinationals and in the industrial and medical fields due to stringent qualification processes and high quality control standards, adds Mak. Therefore, although the Rieter deal was signed a while ago, it takes a long time for it to start contributing to earnings. “I think the point here is that the gestation period is very long. So, for the past two years, we have been talking about it (with Rieter). But finally, we have many parts approved and now we are just waiting for the orders to come in,” he says. “It is key that the Rieter project is about there (ready to contribute). Once that goes into full swing production, I think we can look into profitability,” adds Choong. Mak and Choong are reluctant to provide a specific timeline as to when exactly shareholders can expect that to happen. “Importantly, (orders from) the Rieter project must kick in. Once we go into full swing production and with the expansion into the sheet metal business, “I can safely say that there is a good chance we can break even or maybe turn into a slight profit in the short to medium term. That is management’s objective” Choong stresses.