FROM MAKING precision moulds used in manufacturing the thousands of different car parts, China Kunda is about to leap into manufacturing the components themselves.
(An average of 50,000 moulds are needed for each car model!)
Each mould yields gross profit margins as high as 50% but it takes about two months to design and produce – and there is limited scope for scalability in the business.
Instead of just the mould business, China Kunda (market cap: S$88 million, based on stock price of 25 cents) wants to manufacture the parts.
“This is a far better way to leverage on our technical capability,” as Hau Khee Wee, the CFO and an executive director, explained it to analysts and fund managers. “This is a key focus of our company now.”
In a placement of new shares last month (Oct), China Kunda (www.chinakunda.com) raised S$7.15 million net to pursue ventures in auto component manufacturing.
The market for locally-made components is attractive in China, as the country is largely reliant on foreign companies and imports for higher-end auto components.
Not only that, the Chinese government wants to increase local content to at least 60% even as the number of cars swell in the country.
China Kunda wants to accelerate its entry into the component manufacturing business, so Khee Wee said, it is looking for partners which already have sales channels into car assemblers.
The company doesn’t want to start completely from scratch as that would take up to two years – for the certification and technical verification process.
Instead, China Kunda will seek a stake in partners in auto-manufacturing centres in various cities in China. These partners would find that China Kunda’s mould technology enables them to move up the value chain quickly.
“If everything goes well, the whole company will be transformed in the next 3-5 years,” said Khee Wee.
China Kunda has performed significantly better on a sequential half-year on half-year (h-o-h) basis.
Net profit soared by 89.0% in 1H2010 (ended Sept 2009) to HK$20.5 million, compared to HK$10.9 million in 2H2009 (when the indirect fallout from the Lehman Brothers collapse was most painful to businesses worldwide).
“As the dust settles from the economic meltdown, the mood has gradually transitioned from one of uncertainty to a more upbeat tone, a reflection of the improvement in overall business conditions and sentiments since March 2009,” said Mr Cai Kaoqun, its executive chairman and CEO.
China Kunda considers its technical excellence in plastic injection moulding to be a key competitive strength for the Group.
It has developed in-house mould technologies such as glass encapsulation moulding, plastic air-intake manifold and low pressure moulding.
The company has 120 software engineers and tie-ups with key local universities.
Read our June 09 story: CHINA KUNDA: 'Worst is over, orders are picking up'