K-One Reports 53% Drop in 3Q Revenues

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For the third quarter ended 30 September 2016, Malaysia-based EMS firm K-One Technology Berhad saw its revenue declined by 53% to RM19.4 million ($4.36 million) from RM41.6 million ($9.36 million) in the previous corresponding quarter, primarily impacted by the programmed shifting away from the mobile phone accessories’ business since the beginning of 2015.

On the other hand, K-One Technology experienced a surge in demand for electronic headlamps and floor-care products which, however, were insufficient to make up for the preceding causes of sales shortfall. The group is intensifying its efforts to diversify into the newer business segments such as IoT devices, healthcare/medical equipment and automotive aggregates in an attempt to replenish premium sales for long term growth.

The group posted loss attributable to equity holders of the parent company of RM2.4 million as compared to a profit of RM4.3 million for the corresponding quarter last year. The current quarter’s loss was largely due to the impairment on tooling of RM1.6 million in view of prudency following the group’s moving away from the mobile phone accessories’ ODM business and the increased cost of sales resulting from materials costs escalation and labor costs increase following the revised minimum wage from RM900 to RM1,000 per month effective 1 July 2016. The foreign exchange gain from the USD for the current quarter was subdued as compared to the corresponding quarter last year when the USD was moving towards new highs.

Cumulative sales for the initial nine months of the year ended 30 September 2016 clocked in at RM60.6 million against the same of RM112.2 million for the corresponding period last year, representing a decrease of 46% which was chiefly contributed by the programmed phasing out of the mobile phone accessories' ODM business and, to a lesser degree, weaker sales performance from the network camera segment. The exit from the mobile phone accessories' ODM market is in line with the group’s strategy to intentionally move away from this highly competitive business where severe margin compression prevails. However, it will contemplate to revisit this business if circumstances and conditions turn conducive in the future or re-enter through a different business model which is more sustainable.

Although electronic headlamps, floor-care and other consumer electronic lifestyle products witnessed improved sales during the period under review against the same period last year, sales growth for the balance of the year is expected to be subdued in view of the current lackluster and uncertain global economy. Nevertheless, the group’s strategic roadmap to diversify into the medical/healthcare, automotive, electronic wearables, consumer electronic lifestyle and IoT markets which yield higher margins, longer product life cycles and with upwards industry dynamics is on-going. New ventures in the likes of co-working space business venture, strategic alliance partnership and the launch of own-brand products to support the said diversification is gathering momentum.

Despite the group’s intensified diversification plans, we foresee strong global economic headwinds moving forward. Therefore, contributions from the diversification plans may be restrained for a while until the global economy finds its footing back to stable growth. In such event, we expect the current year’s business to consolidate and earnings to be adversely impacted.

On a brighter note, it is worthwhile to share that the group has recently co-founded the Malaysia IoT Consortium (MyIoTC) with certain like-minded local prominent ICT corporations with the aims to realize the promise of IoT and unlock its business value.