KUALA LUMPUR - Delloyd Ventures Bhd is planning to expand its auto parts operations and is considering mergers and acquisitions (M&A) to capitalise on the improving automotive sector in the region.
Its deputy CEO Leon Tee Wee Leng said Delloyd is in talks with other auto parts makers of similar size for a possible corporate exercise to fortify its position as a regional player in the industry.
“We are in talks at the moment but it is still in the early stage. If it comes through, the consolidation would be a good boost for both parties, as it would improve our operations size and help solve any problems of excess capacity,” he told The Edge Financial Daily.
He said the tie-up would result in a stronger and well-capitalised entity with a stronger reach in the regional market given its exposure in Indonesia and Thailand.
While he declined to name the party that Delloyd is in talks with, he said the deal could see the emergence of a new shareholder in the company.
“All this is still premature at the moment. But if it comes through, it will happen sometime this year,” he said.
The lookout for new M&A deals is part of Delloyd’s strategy to tap the booming auto parts market in the region.
Motor vehicle sales in Malaysia reached an all-time high of 605,156 units last year, up 12.7% from the previous year, and is predicted by industry observers to grow by 4% this year.
Despite the moderate forecast growth for 2011 vehicle sales, Delloyd said it could capitalise on new models being introduced in the market this year, including the new Myvi and Persona replacement models.
“We recently secured contracts to produce parts for the new Myvi replacement model, Proton Inspira, and the Persona replacement model,” said Tee, adding that it is planning to invest RM18 million for a new plant in Tanjung Malim to cater to the Persona replacement model.
Delloyd is also investing RM9 million to expand its Indonesia operations. It recently secured new contracts to supply auto parts for Toyota and Nissan vehicles in Indonesia.
“Our Indonesian operations is showing a lot of potential as total industry volume (TIV) increased some 36% from 550,000 vehicles in 2009 to 750,000 last year. With more cars being sold in the market, we are looking at higher demand for auto parts as TIV is expected to hit one million in 2014,” said Tee.
Tee said the paint shop at the new Indonesian plant is expected to begin commissioning in June 2011, and would have thrice the production capacity of its current plant in Indonesia which is running at full capacity.
“With the new plant, we will begin to produce other components such as sun visor, inner mirror and window regulator. When the new plant runs in full capacity, we could see our Indonesia operations contribute about RM90 million to our total revenue,” he said.
Delloyd is an automotive parts and component manufacturer with a long-standing relationship as Tier-1 vendor to national carmakers Proton and Perodua. lthough the company has also ventured into plantations, the automotive segment remains the biggest contributor to the group’s earnings. It recently changed its financial year-end from Dec 31 to March 31.
For 12MFY2010, Delloyd saw its net profit rise 26% to RM42.5 million from RM33.8 million a year earlier. Revenue increased 38.3% to RM396.1 million from RM286.3 million. Basic earnings per share (EPS) also improved to 47.12 sen from 33.8 sen. About 70% of the group’s earnings came from its automotive sector while 30% came from its plantations segment which saw higher fresh fruit bunches (FFB) production, and higher FFB and crude palm oil (CPO) selling prices.
While the auto segment continues to be the main contributor to the group’s earnings, the plantation segment is beginning to yield better profits for the group.
According to Tee, Delloyd’s FFB yield to expected to improve 20% annually and to contribute half of its earnings in FY2013.
“Our plantations division has grown to be a formidable contributor to the group’s earnings. Last year, it contributed about 30% of the group’s total profits. As more trees began to mature, we should see our plantations side contributing half to our group’s earnings in FY2013,” he said.
To recap, Delloyd first ventured into plantations in 1999 when it acquired 1,449ha of oil palm estate in Sungai Rambai, Selangor.
Delloyd now has a total of 15,871ha in oil palm plantations and as at Dec 2010, some 84% of its Malaysian plantation has matured while 77% of its Indonesian plantations are planted.
The group’s FFB production volume rose by 150% to 111,120 tonnes last year from 44,524 tonnes in 2006.
“By 2014, we target FFB output to reach 194,000 tonnes from our Indonesia production. As for our Malaysian estates, Delloyd plans to replant an average of 10ha annually over the next seven years and complete replanting of palm trees of more than 25 years old by 2021,” said Tee.
