Hi-P to widen customer base and products, expand out of China amid macro challenges

CONTRACT manufacturer Hi-P International on Friday said it will look to diversify its customer base, widen its product mix and further expand out of China to mitigate the impact from current macro headwinds. 

This comes as the group's declining gross profit margin over the last few years amid price pressure and competition have sparked concerns among shareholders.

Hi-P's gross profit margin was at 16.3 per cent in FY2017. It slipped to 14.6 per cent in FY2018 and declined further to 13.7 per cent in FY2019. 

In response to shareholder queries, the group said in a statement that it is focused on broadening its products and services to grow revenue, tightening cost controls, enhancing its capacity utilisation to maximise the economies-of-scale effect, increasing automation, and making improvements to manufacturing yields to maintain and improve on its profit margin. 

In light of US-China trade tensions, Hi-P will also look to deepen its presence in new sectors and widen its geographic footprint outside China, by exploring merger and acquisition opportunities. 

Hi-P's recent acquisition of high-precision plastics manufacturer SEAMCO last year had enabled the group to widen its client base to include a "key high-growth multinational customer", it said. 

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The group said it can also leverage SEAMCO's know-how in thermoset moulding and precision motor component manufacturing to offer these solutions to existing and new customers, as well as broaden its product mix to new sectors such as the automotive market.

Under the group's overall acquisition strategy, there are plans to increase its presence in segments such as high-end personal grooming products; the group will also explore opportunities within the automotive and healthcare sectors. 

"One of our long-term plans has been to diversify our manufacturing footprints in South-east Asia to cope with the impact of the trade war. Furthermore, we plan to focus on developing the China domestic business," said Hi-P. 

For example, the group said it "significantly expanded" its manufacturing operations in Thailand last year. This has yielded positive results, as the group had secured new projects from a key customer to manufacture coffee machines from its Thailand plant. 

As the manufacturing industry gears up for Industry 4.0, Hi-P said it is working on the automation and computerisation of its operations with artificial intelligence-aided processes to enhance system flows. By doing so, it intends to reduce its reliance on labour in the long term. 

Amid work-from-home arrangements due to the Covid-19 crisis, the group has also seen increased demand for products related to computing peripherals and accessories, hard disk drive storage and coffee machines. However, this increase was offset by a decline in demand for other products, said Hi-P.

Hi-P shares closed flat at S$1.07 on Friday.