Omni Mold To Follow Its Customers Into China
MR LOH Sien Chi is relying on a two-pronged strategy to expand his company, Omni Mold, which is headed for the second board in Singapore.
"I would like to strengthen my home base first before expanding regionally, especially into China," said Mr Loh, the company's managing director.
Omni-Mold specialises in the design and manufacture of medium-to high tonnage high precision plastics injection moulds for a variety of products in diversified industries, from computers and telecommunications, to automotives and electronics.
Net proceeds of $6.5 million are due to be raised by its Initial Public Offering (IPO), launched last week and according to the prospectus a total of $3 million will be applied to finance investments in computer hardware, software and networking systems and additional production equipment.
A further $1 million will be used to partly finance the construction of the company's new factory at 51 Joo Koon Circle, expected to be completed by December.
In its IPO, which closes on Aug 11, the company is offering 20 million new shares at 35 cents apiece, representing 28 per cent of the enlarged capital base. The offer price puts the share on a historical price earnings ratio of 14 times.
Having taken care of his home base, says Mr Loh, the next step will be to spread the company's wings to China where there is immense potential for the electronics and telecommunications market.
He has already begun the process, and since 1992 has been training mould-makers from Shanghai, China. He will also be bringing in at least 15 others from Tianjin.
Negotiations are also proceeding with the Tianjin Electronic and Instrumentation Administration Bureau for ventures in China although he has not decided on the form of the venture.
But Omni Mold's spread into China is likely to be rapid, since Mr Loh is targeting to be there within the year.
"My customers, who include multinationals, are penetrating the Chinese market and we will have to provide them with a supporting industry," he said.
Two major customers are Apple Computers and Hewlett-Packard, which together account for roughly two-thirds of Omni Mold's sales. Last year, Apple accounted for 22.7 per cent of sales' revenues, although this had fallen from 23.9 per cent in 1991; while sales to HP amounted to 37 per cent of the total, down from 43.2 per cent in 1991. When asked about his dependence on these two customers, Mr Loh explained: "I chose to have these two customers because they give me the best returns."
It is a conscious strategy to divide his customers into this ratio - roughly one-third of sales to Apple, another one-third to HP and the remaining one-third to other customers among whom is Sun Microsystems, said Mr Loh.
Omni Mold's largest market is therefore the North American region, where about 60 per cent of its sales came from last year.
"North America is where a large part of the research and development for the electronics and telecommunications industry is carried out," he explained.
This means that Omni Mold is vulnerable to the fluctuation of the US dollar, the currency which its North American and European customers pay it with.
However, Mr Loh said he worked in a margin on the selling price to offset the exposure to the fluctuations, and he was reviewing the pros and cons of hedging against currency shifts.
Last year, foreign exchange losses accounted for 0.5 per cent of sales of $10.9 million while in 1992, it accounted for 0.4 per cent of its total sales of $9.5 million.
Mr Loh started the company in 1989 with only $250,000 as its initial share capital, 70 per cent of which was contributed by Mr Chen Wu-Chang, a Taiwanese national.
He had been working in Hewlett Packard for eight years until he decided to venture out on his own. He contacted Mr Chen, whom he did not know previously, based on Mr Chen's experience with mould-making in his Taiwanese company, Hon Yi.
In 1991, the company's share capital was raised to $1 million. He received the backing of his former boss, Mr Koh Boon Hwee, the chairman of Singapore Telecom, who took a 15-per cent stake in his company. The stake was transferred to his wife, Madam Leong Siew Fong, this year.
Mr Chen, the chairman of Omni Mold, later reduced his stake by 15 per cent to 55 per cent when he sold some of his shares to Omni Mold's general manager, Mr Neo Age Seng, and the manufacturing manager, Mr Lau Leng Kok.
After the float, the public will own 28.21 per cent of Omni Mold while Mr Chen will hold 39.49 per cent. Both Mr Loh and Madam Leong will have 10.77 per cent. The remaining 10.76 per cent will be held equally by Mr Neo and Mr Lau.
In its first year of operations (from Nov 1989 to Dec 1990), the company lost $671,000, while the second year saw a loss of $725,000.
By 1992, the company had turned around and made an after-tax profit of $1.1 million while this increased to $1.3 million last year. For the first five months of this year, the company earned $373,000.
Omni Mold is projecting an increase of 15 per cent in sales this year to some $12.5 million and profit after tax to rise to around $1.5 million.
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