SHAH ALAM: QES Group Bhd plans to expand its manufacturing operations and is targeting a higher profit margin after its listing on the Ace Market next month.
“We would like to expand the manufacturing business. Gross profit margin for manufacturing is about 40% while net profit margin for this segment is 30%-40%,” managing director and president Chew Ne Weng told StarBiz in an interview.
Presently, some 87% of its revenues are derived from its distribution business segment. QES is today mainly a distributor of inspection, test and measurement equipment.
The company’s total gross profit margin for the financial year ended Sept 30, 2017 was at 36% while net profit margin was at 9.1%.
It will use some 16.8% or RM4.85mil of the proceeds from the initial public offering (IPO) to develop three products within its manufacturing division.
The three products are the Fully Automated Vision Inspection System, the Automated Wafer Packing System and the Automatic Wafer ID System.
“After working with our customers for more than a year, we think there is demand for such products. These are inspection and handler products for the semiconductor industry,” he said.
QES will utilise most of the IPO proceeds – some 37.2% or RM10.72mil – for capital expenditure (capex) to strengthen its presence in the Asean markets.
“Most of the money allocated for capex, or RM8.3mil, will be used to buy 53 units of demonstration equipment for our distribution business for marketing purposes.
“This is so that any customers or potential customers would not have to always come to our headquarters here in Kuala Lumpur,” Chew said.
He said QES wanted to increase the capabilities at its subsidiaries in the Asean countries.
“For example, if our customers in the Philippines want to do any activation report, we will have to send the samples back here.
“But if we have demo equipment in the Philippines, then it is done in real time. This will add to our competitive edge,” he added.
The remainder of the capex allocation (RM2mil) will be used to purchase new IT equipment such as computers and servers that will be used for digitisation of its international operations.
Another RM400,000 will be used to buy tools and accessories such as wafer ports, air compressors and power ports that is expected to boost its production capacity by at least 20%.
Most of the company’s order book today comes from the distribution division (RM35.3mil) while the remainder comes from the manufacturing segment (RM10mil).
About RM7mil or 24.3% of the funds raised from this IPO will go towards the repayment of its bank borrowings and RM3.25mil or 11.3% will be allocated for general working capital.