GEORGE TOWN: Trophy maker Emico Holdings Bhd can award itself a medal as it appears to have broken the jinx of losses. The group returned to the black for the financial year ended March 31, 2014 (FY14), after a financial roller coaster that saw it reporting annual losses more than 10 times since it was listed on Bursa Malaysia in April 1994.

Emico posted a small net profit of RM328,000 in FY14, against a net loss of RM2.66 million in FY13. Net profit improved to RM1.79 million in FY15 and RM3.66 million in FY16, prompting its managing director Jimmy Ong Chin Keng to declare that the group has broken the loss-making spell.

In an interview with The Edge Financial Daily, Ong said Emico plans to organise a corporate exercise in the first half of FY18 to finance the automation of its operations to reduce delivery time.

“We want to reduce the dependence on labour and step up machinisation as it is becoming difficult to get foreign workers. By modernising, we can reduce delivery time to two months and accept more orders while optimising capacity as we break into new markets,” he said.

The group is now operating at 70% to 80% capacity due to labour constraints but with automation, Ong said, it would be able to increase capacity by 50% in two years.

“We have orders stacked up till March next year but by reducing delivery time or shortening customers’ waiting time, we can reduce backlogs and accept more orders,” he added.

The proposed automation follows a capital reduction plan announced by the group on Oct 19, through which Emico expects to wipe out accumulated losses of up to RM81.3 million.

Ong said the accumulated losses were a result of a restructuring of loan exercise that saw it enter into a debt restructuring agreement with 11 lenders for debts amounting to RM117.4 million in 2001.

The agreement involved the conversion of debts into redeemable secured loan stocks (RSLS), and irredeemable convertible secured loan stocks, with the balance RM9 million into restructured facilities.

During the period of restructuring, Emico disposed of its 60% equity interest in Northern Elevators Bhd, and land parcels in Sungai Petani to raise funds to pare down and fully redeem the RSLS.

Ong said the group had begun to turn around after full redemption of the RSLS in 2013.

Having been in the trophy-making business for 43 years, Emico currently exports 70% of its production to 45 countries, where it has an overall global market share of 25%. Its major market is Europe, where it commands a 50% share.

“We are present in Australia, New Zealand, Southeast Asia, China, Vietnam and the Middle East but there is [a] large untapped market in India and Latin America [apart from Mexico and Ecuador where it already has a presence], which we hope to venture into.

The trophy business contributes 33% of the group’s overall revenue, followed by original equipment manufacturing of medical consumer products for supply to European governments through Swedish medical group Etac AB.

Property development generates 19% to 20% of Emico’s revenue, while trading items, where Emico acts as a middleman to source for raw materials from this region for export to a Swedish company, makes up 15% to 18% of its revenue.

Although Ong has a positive outlook for FY17 with an additional 20% gain on foreign exchange due to a weak ringgit, he still expects a flat to marginal growth in net profit and about 10% revenue growth due to constraints in terms of capacity.

“We are already running at maximum operation now, which is our busiest period (October to December) with current resources based on existing orders. To date, we have recorded RM2.8 million profit before tax and it might double to RM5.8 million to RM5.9 milion by 4QFY17 (fourth quarter of FY17). That would be about the same as last year,” he said.

In property development, Emico is taking it slow due to the soft market. It owns 12.1ha and 11.3ha of land banks in Sungai Petani and Langkawi respectively, which are expected to last for five to six years.

“We are not moving aggressively because of the soft condition of the market. However, we recently completed one phase of 100 to 150 units of landed terrace units in Bandar Aman Jaya in Sungai Petani costing between RM300,000 and RM400,000.

“We are not into big-scale project developments. We prefer medium-size projects where we [form] joint ventures with developers. We want to remain [a] landowner. It is easier to manage that way to avoid bank borrowings.

“We ensure that 60% sales are achieved before construction begins. To date, we have built 1,500 units in Sungai Petani,” he said, adding that two mixed development projects with a combined gross development value of RM45 million will be launched in FY17 and FY18.

For phase one of Taman Simfoni in Kuah, Langkawi, 81 units of double-storey terrace houses priced from RM300,000 to RM400,000 have all been sold.

Emico’s share price, which has fallen 44.4% year to date and 23.1% in one year, closed unchanged at 20 sen last Friday, with a market capitalisation of RM19.2 million.