Miyoshi counting on next-gen tech

Singapore

AFTER its business took a hit when the hard disk drives that used to make up the bulk of its profits were phased out, metalmaker Miyoshi is now staking its future on next-generation technology.

Its recent S$7 million private placement will go towards boosting its investment in Core Power (Fujian) New Energy Automobile, an electric vehicle manufacturer in China. The placement will raise Miyoshi's stake from 15 to 32 per cent.

Miyoshi executive director and CEO Andrew Sin tells The Business Times in a recent interview that besides making and selling electric cars in China, Miyoshi is also developing its high-tech indoor hydroponics plant factory using its domain knowledge of mechanical engineering, and exploring optoelectronics to provide surveillance solutions for homeland security, border control and law enforcement.

It is currently working with Japanese IT firm NEC to market a body-worn surveillance system with facial recognition software.

These are new directions charted since 2014, coinciding with its name change from Miyoshi Precision to Miyoshi in December that year as the company sought to free itself from the shackles of its data storage business that has been suffering from declining turnover in recent years.

Mr Sin says: "The name change was important for us because it was from then that we started to change. We started as a components supplier and carried the Japanese blood and name and culture, so 'precision' was the right word to offer our services at the time."

That was when customers would still be quick to engage a Japanese precision engineering firm for its expertise, but "the world has changed", he says. China has since overtaken Japan as a manufacturing hub. Demand for hard disk drives has also waned due to increased use of solid-state drives, tablets and smartphones, gadgets which replace the personal computers that use the hard disk drives that Miyoshi is manufacturing in declining numbers.

Tellingly, group revenue from the firm's data storage segment has fallen from S$42.5 million in 2012 to S$19.7 million in 2017. Miyoshi posted losses for three years in a row and was put on the Singapore Exchange watchlist at the end of 2013. It was around that time that Mr Sin saw the urgent need to switch to a business that focuses on the future.

"We had to open our minds to shift from precision engineering to other things. Now, anything that is tomorrow-focused and within our means and makes money, we'll do it," he says.

The idea to get into the electric vehicle segment came about in 2014, due in part to Mr Sin's strong belief that combustion vehicles will be phased out in the near future.

After a few false starts, he met Chen Yuming, the founder of Core Power, a startup that was making light electric vehicles (LEVs) - a less sophisticated variant with lower speed limits and mileage, and tends to be used in rural China for getting around within short ranges. Because of their limitations, LEVs are also cheaper to manufacture and purchase.

But things have changed rapidly recently. In April this year, Core Power signed an agreement with Jiangxi Changhe Automobile, a subsidiary of the Beijing Automotive Group (BAG), to jointly develop a new all-electric vehicle. Controlled by Beijing's municipal government, BAG is one of China's largest vehicle manufacturers, and its subsidiary further awarded Core Power two new sales contracts to supply 50,000 all-electric cars within three years in May this year.

Part of the proceeds raised in the recent placement is thus going towards Core Power's capability upgrade, which involves refurbishing its factory facilities, for instance, by constructing a new spray painting line that comes with ovens and compressors, installing robots for glue application, and improving the quality of the cars to ensure that they can pass mandated the crash tests - something it didn't have to do previously with LEVs.

Its car factory has been in shutdown mode to carry out the upgrading works of the metal stamping plant, welding plant and spray painting plant since July this year. Starting October, Core Power is expected to produce at least 1,000 such cars every month in order to fulfil the 50,000-car order over three years.

Mark Khoo, chief financial officer at Miyoshi, calls it "another elevation for the whole company, in terms of activity and quality and process".

"The partnership has elevated us to making mainstream cars, compared to the LEVs we made to serve the rural parts of China." At the same time, partnering a state-owned enterprise will benefit Miyoshi's distribution of the cars across China, he adds.

Although the electric vehicle sector in China is burgeoning, even overtaking the US to become the world's largest market in 2016 on the back of active government support, it is also very fragmented, he says.

Mr Khoo believes China is so supportive of the sector because it has not been able to create a renowned automotive brand like the Japanese, Germans, South Koreans, Americans and French despite years of working with multinational corporations. The government thus sees the nascent electric vehicle sector as a potential business it can shine in.

In its partnership with Core Power, Mr Sin believes Miyoshi can bring to the table regional distribution channels, given the company's presence in Singapore, Malaysia, Thailand and the Philippines. In fact, he is also eyeing distribution markets in Central and South America, which are left-hand drive markets like China.

In a sign of confidence in the company's prospects, Mr Sin has been buying his own company stock, raising his stake from 26 per cent in late May to 26.6 per cent in August. This was after his original 32-per-cent stake was diluted following the placement.

Because Miyoshi is still considered to be doing "reasonably well" in profit margin terms compared to its peers, it hopes to continue to pay dividends. But Mr Khoo says the company has "a lot of use for money now which so far has been giving us a positive response", so it may be more restrained in its dividend payouts.

For its nine months ended May 31, net profit more than doubled to S$2 million on lower expenses, while revenue was flat at S$38.5 million.

Miyoshi has also recently sold its Taman Jurong factory premise, which has been sitting idle for some time after its equipment was all moved to the Philippines. It will be moving to Tradehub 21 in Boon Lay at the end of this year.