Rapid recovery after fire keeps SVI on course
SVI Plc provides electronics manufacturing services (EMS) to customers who are original-equipment manufacturers and design houses, focusing on box-build and system-build product manufacturing. Chief executive Pongsak Lothongkam discusses the company’s strategy and outlook.
What is SVI’s business model?
SVI focuses on two segments, industrial and high-end electronic product manufacturing, for our customers which originate from Scandinavia, Western Europe, the US and the rest of the world. We ensure our revenue is well diversified among our customer base. And by focusing on these two industrial segments, we are not exposed to the volatility of consumer products, as the life cycle of industrial products is typically eight to 10 years.
SVI recently had an unfortunate fire at its facilities. How is the rebuilding progressing?
Last Nov 12, a fire essentially wiped out our facilities, inventory and customer prototypes. That same morning, we set out to move production to our backup facility on Chaeng Watthana Road. Within 48 hours we had built a factory and within 18 days had the facility up for initial high-priority shipments to customers. By the end of December the factory, covering 3,600 square metres, was operating at full capacity.
Concurrently, we began building SVI 2A and 2B. The latter, covering 5,000 sq m, was completed last month and is now running at full capacity. SVI 2A, with 9,000 sq m of manufacturing space and 2,000 sq m of warehousing, will begin operations next month. It has the latest state-of-the-art manufacturing equipment, allowing us to be faster and more accurate than any other EMS company in the region. And once the authorities have approved [the repairs to] our original facility, we hope to use it for future products and orders.
Thus, within two and a half months we are already back to the capacity level that we had before the fire. We are very thankful that all our customers remained with us and for the hard work and dedication that everyone in our entire company exhibited in order to bring SVI back.
SVI recently allowed a share repurchase and investment in funds. Could you provide the rationale behind this?
We have sufficient cash on the balance sheet, and because of our confidence in our ability to recover after the fire, we believe that our share price is undervalued. Hence, the repurchase of 200 million shares or 8.83% of outstanding shares to a value of up to 1 billion baht, to take place between March and September. The investment in the property fund, meanwhile, is standard for us, as we do this to increase our yield on cash.
What differentiates SVI from its competitors?
It is our relentless attention to detail and the ability to invest quickly and correctly that sets SVI apart from our competitors. A typical EMS company bids for orders and competes on price. Our approach is to provide our customers with the ability to build prototypes and test the market first. Then if the model is successful, we will receive a full order. We also have the capability to do high-mix, low-volume business and can ramp up production to higher levels of productivity. This flexibility, plus being able to engineer and design products at a world-class standard, provides our customers with a service that is unparalleled.
SVI has been able to keep its net profit margins at 9-10% with continued growth. Will this be possible to maintain?
Yes, this is our internal company target, and we plan to maintain it annually. Our competitors typically have a 1% margin, but due to our economies of scale, efficiency and the products we make, we have been able to achieve higher profitability.
What are the biggest risks facing your business?
SVI has gone through multiple crises in recent years. We survived the global financial crisis, the multiple political crises that have hurt Thailand, the floods (which affected our area greatly) and now the recent fire. And despite all this, SVI is still here today, operating at full capacity and able to provide customers a world-class service.
How will the Asean Economic Community (AEC) affect your business?
The AEC will be positive for us, opening new markets in terms of sourcing raw material and labour talent and also providing us with the opportunity to expand more easily into neighbouring countries to build new facilities.
Where do you see SVI in five years?
Our goal for SVI is to be a billion-dollar company. First, we will strengthen our base in Thailand by having two major sites, which may include a location in a border province that has a vast labour pool and strong infrastructure. Second, we will look to expand within the region, as this will give us access to additional resources that may not be available in Thailand. Finally, we are continuously looking for acquisition opportunities in the US or Europe.