Automotive group MBM Resources Bhd, which is targeting a revenue of RM4 billion by 2015, is bringing down costs in its auto parts manufacturing business in the face of liberalisation of the auto market but not at the expense of margins.
Its group managing director Looi Kok Loon (pix) said in the manufacturing business, there is great focus on trying to improve the group’s efficiency and to embark on cost reduction programmes as the National Automotive Policy is set to liberalise the market to greater competition and making the industry more efficient.
“At the end of the day, it’ll be a survival of the fittest because as competition builds up, there is pressure for prices to come down. We, on the manufacturing side, have been working in tandem with customers in terms of bringing down costs. It’s the ability to bring down the cost to match the competitive pressures on the pricing of products and not necessarily a sacrifice of margins,” he told a press conference after the group’s AGM here yesterday.
In terms of manufacturing, the group is taking a holistic approach to reduce its cost, from efficiencies in manufacturing processes, labour inputs, looking for alternatives, redesigning a product as well as sourcing for cheaper materials, among others.
“Based on what’s been indicated, there will be a gradual reduction in car prices and we feel we have to position ourselves for that,” said Looi.
He said during the 13th general election period in May, the group’s sales were poor as people adopted a wait-and-see attitude but sales have picked up in recent weeks as clarification from the Ministry of International Trade and Industry has helped in getting the sales back on track.
Its director of auto division Cheng Seng Fook said the expectation on the reduction of car prices is via the efficiency of car manufacturers, as well as through a competitive open market.
“When the market opens in 2015, we will see a more competitive way of selling vehicles and therefore car prices may be slightly reduced… not through sacrificing the margins but through the open market competition approach,” explained Cheng.
Its 20%-owned associate Perusahaan Otomobil Kedua Sdn Bhd (Perodua) has said that it is committed to reducing its operating cost by 30% by 2016 in a move to bring down the total ownership cost of vehicles. In line with this, Looi said Perodua also demands that the group brings down its cost.
MBM Resources supplies auto parts such as seatbelts, air bags and wheels to Perodua and is also involved in the tyre assembly of Perodua vehicles.
He said MBM Resources has allocated a capital expenditure (capex) of RM28 million this year for the remnants of the Oriental Metal Industries (M) Sdn Bhd alloy wheel plant investment, upgrading of equipment for manufacturing and its network expansion.
“We’ve seen the peak of our capex already. The big chunk of investments have been made in the last couple of years, especially on the alloy wheel plant last year.
“The focus moving forward is to get the revenue generated from these investments so capex will slow down from here on. As capex slows down, revenue generated from businesses will help towards paying loans,” he said, adding that the group has spent RM228.5 million in capex from 2010 to 2012 and has a gearing ratio of 19.5% as at end-2012.
Meanwhile, the group is targeting a revenue of RM4 billion by 2015 by increasing capacity and productivity in major investments it has made.
“By 2014, we should achieve greater financial stability when expansion costs are fully absorbed and major investments in manufacturing such as our alloy wheel plant in Rawang and the joint venture (JV) with Hino Motors Ltd in Sendayan, Negeri Sembilan begin to contribute. Hirotako should remain a major revenue contributor, especially with car manufacturers actively enhancing vehicle safety to meet Asean New Car Assessment Programme standards.”
On the Hino Motors JV to set up a manufacturing plant in Sendayan, Looi said it is on schedule and the group expects the facility to be completed by year-end and starts commercial production by the first quarter of 2014.
The group registered RM2.27 billion in revenue for the financial year ended Dec 31, 2012 and the group’s total vehicle sales in 2012 was 25,507 units. The market share of the group and its associates as at 2012 stood at 35%.
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