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ISTONE (0209): I-STONE GROUP BERHAD eyes new customers, industries for growth

AGAINST a backdrop of economic challenges for the second year running amid the Covid-19 pandemic, I-Stone Group Bhd — manufacturer of automation machines and provider of data management systems — is looking to broaden its customer base by diversifying into the semiconductor, automotive and medical industries.

The ACE Market-listed company is in the process of identifying new customers from the sectors it currently operates in — home appliances and electrical and electronics (E&E) — as well as from the industries it is diversifying into, as part of its long-term strategy to expand and solidify its presence in these segments.

“We are looking to [capture] new customers from various industries locally as we see opportunities in providing our services to companies that plan to automate their manufacturing processes owing to the Covid-19 pandemic, which has led to difficulties in hiring foreign workers,” I-Stone managing director Rebecca Tee says in an email response to questions from The Edge.

She adds that while broadening the group’s customer base remains its main challenge, exploring new customers from a wider range of industries will help it to diversify its market risk. “We believe that our expertise and experience in the E&E industry can also be applied to other industries, especially in testing and automation.”

Concurrently, the company has established a new business division to identify new customers from the automotive and oil and gas (O&G) industries.

I-Stone, which was established in early 2007 and debuted on Bursa Malaysia in July 2019, has been a strategic partner for various local and multinational companies, supplying turnkey test and measurement systems for their manufacturing divisions.

Last August, a year after its listing, I-Stone saw the emergence of Datuk Awang Daud Awang Putera — co-founder of Serba Dinamik Holdings Bhd and executive chairman of Minetech Resources Bhd — as a substantial shareholder with a 26.98% stake. Subsequently, Awang Daud was appointed as non-executive non-independent chairman of I-Stone.

Tee says Awang Daud’s mission is to lead the group into the Fourth Industry Revolution (IR 4.0) by further exploring and developing sustainable intelligent networking and end-to-end systems for machines and processes. It remains to be seen if I-Stone will benefit from synergies with Minetech and Serba Dinamik through Awang Daud.

“Datuk Awang Daud is highly committed to the growth and development of I-Stone. While he holds a high position in all these companies, the companies remain independent in their focused industries,” says Tee, adding that I-Stone will be able to tap its chairman’s 30 years of experience as an entrepreneur.

In an earlier interview, Awang Daud had explained his decision to invest in I-Stone as a long-term strategy to leverage IR 4.0 fields such as automation and big data. He noted that the manufacturer’s high product customisation level and technical sophistication provide new avenues for penetrating the food and beverage, O&G and automotive industries, besides the E&E sector.

This year, I-Stone will continue to rely on its two primary business segments — manufacturing and distribution — for growth. In the cumulative nine months ended Sept 30, 2020, the group’s net profit fell 37.3% year on year to RM5.05 million, while revenue was down 29.2% y-o-y to RM39.79 million.

“We expect better financial results in FY2021 compared with FY2020, barring further complications from the pandemic,” says Tee.

As at Oct 31, 2020, the group’s order book stood at RM26 million, which is set to pave the way for organic growth this year.

To clinch those new accounts, Tee says I-Stone will depend on the technical abilities of its management team, as well as its business expertise in enabling the customisation of specialised automation machines to suit customer specifications.

“This capability is one of our foremost competitive advantages in the industry, as it allows us to have more flexibility and responsiveness when it comes to meeting the needs of our customers. It provides them with customised solutions within a shorter production lead time as we have full control over the entire design and manufacturing stages,” she explains.

Tee adds that I-Stone’s capabilities in the manufacturing of specialised automated machines have given it the upper hand, allowing it to maintain long-term business relationships with its customers. It counts Dyson Group of Companies, VS Group of Companies and Mitsumi Philippines Inc as its long-term customers. In April 2018, the group had commenced distribution, installation and support activities for Universal Robots, a Danish manufacturer of smaller flexible industrial collaborative robot arms.

“Our relationships with our customers have been instrumental in sustaining our growth over the years as well as in expanding our expertise through the development of new solutions with advanced technology to meet the changing needs of our customers. Meanwhile, our supplier relationships provide us with an advantage in procuring components at competitive pricing that contributes to better profit margins,” she says.
Open to M&A

As at 3QFY2020, I-Stone still had unutilised initial public offering proceeds of RM17.04 million from the RM39.09 million it had raised in 2019. It has fully paid off its listing expenses of RM3.5 million and used RM6.8 million for the construction of its design and development centre, located within its new factory in Senai, Johor. The balance of the proceeds is being utilised to fund working capital for expected business growth, capital expenditure, and process and product development as well as to repay borrowings.

“We do not have anything conclusive now, but we are open to mergers and acquisitions with companies that have synergies with I-Stone and that can bring the group to the next level,” says Tee.

Meanwhile, the group has put its plans to broaden its overseas customer base in the Philippines, Singapore, Taiwan and other countries on the back burner due to the Covid-19 travel restrictions.

For now, I-Stone has reduced its physical sales and marketing activities and shifted most of its communication channels online. It has also lowered its internal costs, such as for raw materials, and standardised its processes in order to reduce its operational costs, on top of conducting R&D activities for standard modules to lower its cost of goods sold.

The group has yet to formulate a dividend policy or a payout ratio. However, it has declared an interim dividend of 0.25 sen per share for FY2020.

http://www.theedgemarkets.com/article/istone-eyes-new-customers-industries-growth


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