Memtech International, which has been supplying parts for Tesla's battery packs, is seeing more business volume from the electric car maker as the latter raises production of its Model 3.

TMChuang4.18TM Chuang, executive director, Memtech. NextInsight file photo.Memtech is now supplying parts that go into the Tesla car drivetrains too.

With this track record, Memtech is seeking opportunities to supply to other electric vehicle manufacturers.

"Besides Tesla, we are trying to capitalize on our experience providing all these components to support other EV companies as many have announced that next year, they will go into volume production," said executive director TM Chuang at a 2Q18 results briefing this week.

In the conventional car space, Memtech will supply parts to the new model of Mercedes-Benz A-class from January next year.

"The A-class has attracted very positive reviews and this is a major project for us," said Mr Chuang. 

These projects will support continued growth in Memtech’s automotive segment, which enjoyed a 32.6% y-o-y increase in revenue to US$22.3 million in 2Q18.

This segment accounted for about 50% of the group revenue.

♦ Consumer electronics segment: Memtech expects an unnamed US customer, after a few months of delay, to kickstart multiple projects in the weeks or months ahead.

Another customer, Beats, a producer of premium headphones, will have a new product launch in 4Q, while Memtech expects a decline in business with customer Amazon.

In 2Q18, Memtech's consumer electronics segment's growth was flat at 2.9%, (US$14.3 million).

This was the result of key customers pushing back the launch of certain projects while other projects reached end-of-life due to customers refreshing product lines and transitioning into newer models.

Industrial & Medical segment: Though relatively small in absolute dollars, the percentage gain in revenue from this segment was tremendous, surging 79.1% y-o-y to US$4.5 million.

This was due to new project wins -- including a handheld scanner -- going into mass production.

♦ Telco segment: It declined 14.8% yoy to US3.8 million.

Overall, Memtech faced unexpectedly higher operating costs in 2Q2018 but expects the 2H to turn in a better set of results, as it typically has in the past.

2Q18 saw a sharp rise in raw material prices, chiefly silicon rubber (owing to a supply shortage arising from a factory shutdown) and plastic resins.

Packaging cost rose too, as China stopped the import of waste paper which previously was used to make cardboard.

(Memtech is unable to pass on such cost increases to its customers but seeks customers' agreement to postpone cost-downs that were scheduled.)

Labour costs also were higher than expected while Memtech increased the outsourcing of tooling.

Overall, 2Q gross margin fell from 17.3% to 14.7%.

Net profit in 2Q18 was 56.8% lower at $2.1 million while revenue rose 19.1% to $45.0 million.

Excluding one-off items, the 2Q18 core profit declined 20.3%.  

For UOB Kay Hian's report, click here.

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