Benefiting from Philips tie-up
Profits at mainboard-listed Action Asia took a dive in 2005 and 2006 when the designer and original equipment manufacturer (OEM) of auto entertainment multimedia systems took the bold step of diversifying its range of products to include lifestyle products such as portable DVD players and digital photo frames.
 The move for the group – which was listed on the Singapore Exchange in January 2004 – however has since paid off handsomely. The company is also a subsidiary of Action Electronics, which is listed on the Taiwan Stock Exchange.
Action Asia has since reported a hefty 198% increase rise in sales to S$230 million for the financial year 2007. Net profits rose to $3.4 million reversing losses of $3.6 million and $4.5 million in the preceding two years.
For the first quarter of FY2008, it chalked up a net profit of $238,000 – its fourth consecutive quarter of profit – on the back of a 127% increase in revenue to $48.7 million compared to the same three-month period a year ago.
The group's cash and bank balance also improved by 21% to S$35.5 million from S$29.2 million in the previous corresponding quarter. As a result, Action Asia also restored its dividend payout to shareholders to 0.5 cents after paying 0.2 cents for 2006.
Prior to 2004, the group which was started up by Taiwanese investors who set up their first plant in Malaysia in 1987 had never gone into the red, says its group chairman, Peng Chiun Ping.
He attributes the vastly improved performance to its newly- established collaboration in 2005 with the Dutch consumer electronics giant, Philips, which he notes is a veritable global leader in portable DVD players as well as pioneer in digital photo frames.
The partnership does not only involve design and manufacturing but also sales and marketing as Action Asia's Hong Kong subsidiary, ASD Electronics plays a key role in spearheading its marketing drive to key customers in United States, Europe, Latin America and Asia, especially China.
Says Peng, "We are proud that the products designed by Action Asia's very own R&D lab have received good market acceptance. For instance, we have launched the world's first portable DVD player with iPod docking stations and a new series of digital photo frame designs with Philips. The innovations underscore our design capabilities which put us ahead many global competitors."
"Looking forward, we will continue to focus on our R&D efforts and actively pursue new opportunities with partners with the right R&D capabilities and technologies to sharpen our competitive edge," says Mr Peng, who adds that Action Asia expect to increase the number of R&D staff at its Shenzhen facility from 150 to 200 this year.
As a result of the tie-up, Action Asia is now one of the major suppliers of Philips and has expanded its manufacturing base from Penang in Malaysia to China to Shenzen in 2007.
A second US$7 million manufacturing facility is being built in Shanghai with phase one of production rollout expected by the coming September.
"We will have additional annual production capacity of between 2 million and 3 million units which will increase our total annual production capacity to between 5 million and 6 million units," says Mr Peng.
 But even then, he adds that the new production capacity will still not be enough to meet Philips' demand which has been estimated by industry watchers to be in the region of at least 10 million units a year. According to the research group, IDC, worldwide shipments of digital frames which saw 2.8 million units in 2006 is expected grow to 42.3 million units by 2011.
While the bulk of Action Asia's DVD units sold China have been limited due to worldwide demand, it has been estimated that the compound annual growth rates (CAGR) of China's portable DVD and DVD-ROM will reach 49.7% by 2011.
It was only in the first quarter this year that Philips started selling its new lines of products to the mainland in anticipation of a surge in consumer demand for digital media products arising from broadcasting of the 2008 Beijing Olympics.
Notes Peng, "Major events like the Olympics and 2010 Expo in China will lead to enhancement in digital technology and digital television broadcasting systems in the country, which in turn will trigger bigger demand for digital audio products, especially those with good quality visual effects."
He declines to reveal the profit margins for the portable DVDs and digital photo frames, except to say they are more than 10%.
In the meantime, Mr Peng also expects the auto accessories division which main plant is in Penang to return to the back this year despite slower auto sales in the United States – thanks to future tie-ups with auto manufacturers in Japan to produce roadmap navigation equipment. These new products will be initially targeted at markets in the US and Japan, before expanding to China and the rest of the Asia-Pacific region.
Previously, Action Asia's product range had been limited to mobile video products such as DVD players with display screens ranging from 6.8 to 15 inches that are installed either on vehicle dashboards or overhead drop-downs as well as on the seat headrest of automobiles and commercial vehicles. It also supplies video display screens for homes, offices and hospitals.
Most of its auto products had been sold in the USA under the Audiovox and Delphi brands through automakers such as Chevrolet, Toyota and Isuzu as well as car accessories chains and hypermarkets.
But thanks to the Phillip's connection, Action Asia will no longer be overly reliant on the US market, which is facing an economic slowdown. Revenue contribution from North America has fallen sharply from 94% in 2006 to 61% in 2007, and is expected to decline further to 54% for FY2008.
Contribution from Europe will rise to 36% compared to 2% in 2006; while turnover from Latin America, Australia and the United Kingdom which were non-existent two years ago will account for 6% of overall group sales in 2008.
By end-2008, about 83% of its production base will be in China with the rest in Malaysia – a complete reversal from the scenario only two year ago.
By AJ Leow
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