Towards a brighter tomorrow
At a time when a lot of companies are expected to weigh in with weaker sales and profit numbers amid the current global financial turmoil and downturn, JK Yaming expects to chalk up record figures for the full financial year.
After all, its group profits for the first half of financial year 2008 have already surpassed that for financial year 2007. The manufacturer of electrical lighting, automobile wire harness and multi-layer ceramic heaters has already posted a half-time profit of $4.53 million, compared to $3.76 million for the whole of 2007. Turnover for the first half of the year was up 30.3% to $83.9 million compared to $68.5 million for the corresponding six months in 2007.
Notes group financial controller, Peter Khoo, "Our gross profits have risen because margins has improved across the business segments from 6.5% to 10% for harnesses; 21% to 22.8% for our induction lamp products. For semiconductor segment (which includes ceramic heaters used in hair dryer, hotel's boiler pot and oven), it's 32%. Overall, gross margins is about 15.6%."
"Going forward, we expect annual sales of induction lamps to continue to grow. It has improved from $1 million in both 2005 and 2006 to rise by six-fold $6.2 million in 2007, but for the first half of 2008, we saw sales of $5.9 million. For the full year, we expect sales of induction lamps to more than double to the $13 million to $15 million range."
He reveals that JK Yaming had doubled its shifts since April to cope with higher demand for induction lamps. It has added an additional assembly line in September to double its production capacity from 60,000 units to 120,000 units a year. The group expects both lines to be running on two shifts by the first quarter of 2009, which can ramp up output of lamp units to 240,000 units annually on a full double shift.
Most of the demand for its induction lamps has come from US, Europe and Korea, which accounts for 55% to 60% of sales that is driven by companies looking for more eco-friendly and energy-saving products for lighting usage. Sales are picking up in other geographic markets with increasing number of customer queries from Southeast Asia, Japan, Middle East and South Africa.
"The life span of an induction lamp is four to five times, or about 10 years compared to two to three years for conventional high intensity discharge (HID) lamps. So there's less wastage and need for disposal. Induction lamps are also more efficient in that there's less heat generated and hence more than 90% of the energy is converted to light compared to 15% for fluorescent and 50% for HID lamps," says Mr Khoo.
Such characteristics make induction lamps more desirable for cold storage room environments as well as greenhouse applications when higher luminance is needed during winter periods.
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Lighting contrast difference |
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Domestically, JK Yaming has also seen sales of its induction lamps gaining traction. Although the use is still not widespread on the mainland, it's picking up. Says Mr Khoo, "We are number one or the market leader when it comes to the deployment of lighting fixtures for tunnels in mountainous areas in China. The light fittings are often placed very high up and need to be operational 24/7 as the tunnels can be very dark. Frequent lamps replacement can be disruptive to traffic flow."
He explains that the drawback for higher usage of induction lamp has always been the price, which is more than twice that of conventional HID lamps. As a result, many municipal authorities had been reluctant to install them in the past. "When, we first started out selling our induction lamp products in 2005, it was difficult to convince managers of infrastructure projects that the lamps can last so long as we didn't have a track record as yet," says Khoo.
JK Yaming, he adds, is a niche player in the induction lamp segment of the global market. It started its research & development (R&D) work on induction lamps back in 1994 before spending a decade on testing and meeting global standards and commencing full-scale production. The company collaborates with universities in Xiamen and Shanghai and spends about S$1 million annually on R&D.
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US-Mexico Custom lighting |
Roadway lighting in Chicago |
"Our main competitor in China isn't strong in R&D and unlike us, most of their component parts are sub-contracted. Most of our technology is proprietary and patented. We are also strong in outdoor applications like street lamps and warehouses. Our competitor may spend a lot more on marketing than us, but we spend more on R&D and as a result have been able to prove the durability of our products compared to theirs," says Khoo.
He adds that JK Yaming is the only global manufacturer that has the capability to undertake commercial production of induction lamp up to 400 watts. Philips for example produced induction lamps up to 150W while Osram up to a maximum of 200W.
Asked if JK Yaming is willing to lower its average selling prices (ASP) to enhance its market share, Khoo says, "So far, we are still coping with rising orders and margins are high. If we can raise our production output by four times, we may consider lowering the ASP although that also depends on the competition."
 Besides the induction lamp segment, which is likely to see the biggest future potential for growth, the company's mainstay business which accounts for 58% of the company's turnover is that of a supplier of automotive electrical harnesses for Sumitomo, which is the contractor for Nissan vehicles. JK Yaming is one of six suppliers for Sumitomo, which incidentally has a 20% stake in its one of its harness plants.
"Currently, we carry out a lot of work on Nissan Cefiro cars at our plants," says Mr Khoo who adds that Sumitomo who had recently revamped its management in China has decided to pass on higher-margin work to JK Yaming due to the better efficiencies of its plants.
"The auto harness business is a stable source of income with little need to market our services," he notes adding that Sumitomo will be providing the funding for ramping up production capabilities of the joint venture plant in Fuzhou by 33% by second quarter next year. That allows JK Yaming to use its own funds for expanding the lighting division which current contributes to 39% of turnover.
JK Yaming was incorporated in Singapore and started its operation in 1984. Listed on the main board since August 2001, it has 10 subsidiary companies with seven production facilities located in Nanping, Fuzhou, Anhui, Ningguo and Shanghai in China. It's in Nanping that the induction lamps are assembled.
Says Alan Lok of SIAS Research who has a Buy recommendation for the company's stock, "Without any intelligent programming, induction lamp has proven to consume about 40% less electricity than a conventional metal halide lamp. As energy conservation remained a major concern, it is expected to receive widespread adoption of induction lamp within the lighting industry."
"JK Yaming is a classic case of being in the right industry at the right time. A simple head count of the growing number of subway and highway being laid out across the cities of China will give a rough idea of the potential demand for induction lamp. We have yet to include the demand for induction lamp in industrial and commercial buildings as well as residential properties.
"At present, there are about 50 companies in China that produce induction lamp. However, most of these companies are small scale entities that do not possess high wattage commercial manufacturing capability and most of them only manufacture specified parts of induction lamp. We expect JK Yaming to maintain its current operating margin of 45% for this business segment in FY09 relative to an operating margin of 5% for standard lamp," adds Mr Lok.
Phillip Securities analyst Chan Wai Chee says, "We expect the company's earnings per share (EPS) to ramp up as business improves significantly this year. The price earnings multiple is expected to come down as earnings are expected to almost double in FY08."
He also points out that any rise in raw material and labour costs could easily be offset by adjustments in selling price due to JK Yaming's favorable product mix of higher-margin products.
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