YHI - leading the road race
(2005-03-03)

YHI - leading the road race

THINGS are looking good for YHI International, as the distributor of automotive products and alloy wheel manufacturer has been rolling out one record performance after another in recent years. YHI today has come a long way from the humble sole-proprietorship it began as in 1948.

Last week, the group announced a 39 per cent surge in net profit for the year ended Dec 31, 2004 to $20.3 million. It also saw revenue rising 32 per cent, from $220.7 million to $291.3 million. This comes after record earnings in 2003.

YHI started as a distributor, clinching appointments as the exclusive distributor for Hitachi batteries, Yokohama tyres and Enkei alloy wheels in Singapore over the years. It has the biggest share of the passenger tyre market in Singapore with about 70 per cent. In 1996, YHI decided to venture into manufacturing alloy wheels, giving it a new platform.

'As a distributor, you will usually face territory restrictions. You will be controlled, and cooperation is needed, but as a manufacturer, you can come up with your own policies with no principal involved,' said Richard Tay, managing director of YHI, in an interview with BT.

He pointed out that there are better profits to be made from manufacturing as compared to distribution in the long run, as the overhead for distribution is higher. As an original design manufacturer (ODM) of alloy wheels, YHI's strength lies in the seamless supply chain it provides, from the designing and development of the alloy wheels all the way to distribution and sales.

Its extensive distribution network, spanning Singapore, Malaysia, China, Australia and other markets around the world, helped kickstart this strategy.

Distribution strength

Distribution still remains its core business focus presently, accounting for 71 per cent of its 2004 revenue, but Mr Tay says that the group had set a goal for the manufacturing business to comprise half of total turnover by 2008.

Currently, YHI has two manufacturing bases in Taiwan and Shanghai, both already operating at full capacity. It has acquired two more plots of land - one at Sepang, Malaysia, and another at Suzhou, China - to build new plants and expand production capacity. The Suzhou plant will be the biggest, occupying a land area of approximately 52,000 square metres.

Much of YHI's manufacturing expansion plans centres on China, but the group will initially export 90 per cent of its manufactured wheels rather than tap the Chinese market. Mr Tay said: 'Our main markets lie in the more advanced countries, like Western Europe, USA and Japan, because their cars and rim-sizes are bigger, so it is more value-added for us. Cars in China are usually smaller, so the rim-sizes are also smaller. Because of our limited capacity, the world market is still our priority, so we prefer to export than deal in the Chinese domestic market currently.'

However, this will change with the construction of new manufacturing plants. 'The automotive industry in China is relatively newer, but the China market is very large,' he pointed out. 'The company still has potential to grow, especially since 2004's increase in revenue and profits is mostly due to China. The new plants will provide the capacity needed for us to cater to the domestic market.' The group's future clearly lies in the overseas markets, as the Singapore market is simply too small, accounting for only 12 per cent of 2004's total revenue despite having a 70 per cent of the market share.

YHI's main tyre partner, Yokohama, has plans for expansion in the Philippines, Thailand and Hangzhou. The new Philippines factory will be manufacturing a wider range of tyres, while the Thai factory will be dealing in commercial tyres. This will raise production capacity from the current three million pieces to seven million pieces by 2007, the group said, increasing opportunities for YHI to distribute and sell more tyres.

Optimistic outlook

Due to the implementation of the Asean Free Trade Area (Afta), importing tyres within the Asean countries will incur lower tariffs, allowing YHI to match local manufacturers more competitively. As the revenue from the Asean countries contributed to 40 per cent of the total revenue for 2004, this will save costs for the company significantly, helping to widen the profit margin in the future.

'So far, we've been consistently meeting market expectations,' Mr Tay said. 'Our prospects will remain positive for the current year ahead.'

Analysts were generally as positive on the YHI's future. DBS Vickers maintained its 'buy' recommendation and said: 'Despite consistently better results, YHI's share price performance has been lacklustre. As such, we believe that this presents a good opportunity to accumulate a high-growth stock at attractive valuations.'

GK Goh is also positive on YHI as well, calling it 'an attractive buy on potential robust demand for replacement tyres in China'. YHI shares closed yesterday up 1.5 cents at 49 cents.

  
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