LOW-PROFILE Scope Industries Bhd has quietly made a turnaround, and without much fanfare, its revenue skyrocketed to an all-time-high in the financial year ended June 30, 2021 (FY21).
It is also busy expanding its production capacity and workforce to meet its increased orders.
It is, hence, unsurprising, that the share price of this printed circuit board (PCB) manufacturer has jumped by about 66% in a span of slightly over three months from June.
While Scope’s key business divisions, namely, manufacturing, plantation and trading, saw a strong performance in FY21, it is the manufacturing division that shined the most.
Driven by stronger sales, the manufacturing division posted a three-fold increase in revenue to RM41.62mil in FY21, up from RM13.25mil a year earlier.
If one digs deeper, a key catalyst for Scope’s growth is the close working relationship with its substantial shareholder, Inventec Appliances Corp.
Recently, the relationship grew stronger after a vice-president of Inventec Appliances, Hsu Ching-Chen, was appointed as a member of Scope’s board of director on Aug 25.
Taiwan-based Inventec Appliances owns about 7.32% in Scope, after emerging as a shareholder back in 2019.
It is worth noting that Inventec Appliances is the wholly-owned subsidiary of Inventec Corp, which is listed in Taiwan with a market capitalisation of about 94.9 billion Taiwan dollars (RM14.2bil).
Inventec Appliances, which designs and manufactures smartphones and related devices, has a factory in Bayan Lepas, Pulau Pinang.
In a reply to StarBizWeek, Scope chief operations officer Elsie Ong says that the group has been working together with Inventec Appliances very closely for a couple of years.
“Scope’s expansion plan has taken into consideration Inventec’s requirements and new business opportunities, which Scope is working on now,” she says.
While Ong did not elaborate more, it is believed that Scope’s orders have been increasing as a result of the relationship between Inventec Appliances and Nasdaq-listed smart speaker manufacturer Sonos Inc.
As the largest manufacturer for Sonos’ products, Inventec Appliances should benefit from Sonos’ efforts to diversify its supply chain into Malaysia.
Sonos has historically manufactured its products in China, but following the US-China trade war, it has added its contract manufacturing in Malaysia. In its latest quarterly filing, Sonos said its transition into Malaysia would be completed in 2022.
Quoting Sonos chief financial officer Brittany Bagley, the Wall Street Journal reported in May that the company plans to source all of its US-bound products from Malaysia “by the fall”. The US is the company’s core market, generating more than half of its revenue.
Amid such a major shift to Malaysia, Scope is likely a beneficiary through Inventec.
Ong did point out that the group has been producing high-end speaker systems, although she did not clarify if those products are related to Sonos.
“Scope is looking to procure more contracts to assemble or manufacture higher end products to improve profit margins.
“We will improve the efficiency as well as the output quality from our manufacturing plant.
“Scope will remain focused on its manufacturing division and keep improving our production capabilities,” she says.
Currently, the group’s manufacturing division is still in the early stage of expansion.
Scope is in the process of building a new manufacturing plant, which will cost about RM36mil.
The new electronics manufacturing plant is adjacent to its existing production plant in Perak, and this is set to more than double Scope’s production area.
According to Ong, the new plant will increase the production area by approximately 154,000 square feet (sq ft) to 299,200 sq ft, up from 145,200 sq ft currently.
“In our effort to help to improve the environment, the new manufacturing facility will have a solar roof,” she adds.
The new plant will be funded by the cash raised from the rights issue completed on July 27 this year.
Ong points out that the rights issue exercise was oversubscribed by 33.67% and raised about RM67mil.
Inventec Appliances is one of three shareholders that provided “irrevocable and unconditional undertakings” for the rights issue to meet minimum subscription.
“Scope has also announced a proposed bonus issue of warrants on Sept 7 to reward its shareholders and to raise another RM103.8mil, assuming all warrants are exercised.
“Scope has allocated 60% of the proceeds to expand its electronic business in the future,” she says.
Looking ahead, Ong says Scope has been continuously improving its production workflow and upgrading the production capabilities to meet its customers’ requirements, which include among others, product mix, quantity and delivery time.
“For information, Scope has obtained ISO13485 which certifies Scope being capable of manufacturing medical devices regulated by the US’ Food and Drug Administration (FDA).
“Thus, Scope is now poised for take on higher order quantities and higher end products, which provide better margin,” according to her.
In FY21, Scope’s revenue increased more than four-fold year-on-year to RM87.19mil from RM19.64mil a year earlier.
It also recorded a profit after tax (PAT) of RM7.44mil in FY21, compared to a loss after tax of RM26.16mil in the previous year.
About 47% of Scope’s revenue is contributed by its electronics manufacturing business. The division registered a PAT of RM5.59mil.
Meanwhile, the remaining topline contribution came from the oil palm plantation, trading and investment holding divisions.
Scope reported that its plantation division managed to turn around with a double-digit revenue growth in FY21 as the average fresh fruit bunch (FFB) prices rose by 60.8%. The PAT for FY21 was RM1.76mil.
In the previous year, the division faced losses after a RM20.4mil impairment was made on goodwill related to its subsidiary, Pioneer Glow Sdn Bhd.
As for the trading business, this is a new division, following the incorporation of a new subsidiary in Singapore. In FY21, the trading division recorded a PAT of RM1.19mil.
Moving forward, Scope says its plantation business will continue to ride on the FFB production and FFB price.
It also expects the trading division would continue its effort to generate more sales in the coming quarters.
“The challenges faced by this division would be the container shortage situation,” the group says in its results filing earlier.
It is worth noting that Genting Bhd chairman Tan Sri Lim Kok Thay’s younger brother, Datuk Lim Chee Wah, has been a substantial shareholder of Scope since he emerged in the group back in 2012.
Through his vehicle, Wah Len Enterprise Sdn Bhd, Chee Wah owns an indirect stake of 8.53% in Scope. Wan Len is involved in oil palm plantation.
Based on Scope’s FY20 annual report, Wan Len’s managing director Lim Ee Tatt is also a member of Scope’s board of directors.