Ingress Corporation Berhad

They say one cannot go wrong following one's gut feeling. That's what perhaps prompted Ingress Corporation Bhd to shift its parts-manufacturing operations from Indonesia to the 'Detroit of the East' - Thailand.

The decision, made during the East Asian financial crisis of 1997, has turned out to be quite a winner for Ingress' 73.7 per cent-owned subsidiary, Ingress Autoventures Co Ltd (IAV). Located at the Eastern Seaboard Industrial Estate in Rayong, the company is a joint venture with Katayama Kogyo Co Ltd and Mitsubishi Corporation Co Ltd of Japan.

As Motonori Tanimoto, director of the general affairs & quality assurance division at Katayama, tells Malaysian Business, "After all, one cannot go wrong if one follows the steps of the major players such as General Motors (GM), Ford and DaimlerChrysler".

For instance, he says, GM and Isuzu (49 per cent controlled by GM) have made big investments to turn their Thailand operations into an export base for their pick-ups. Honda is also expanding the export of its compact passenger car (reported to be Fit) from Thailand.

"Moreover, we have also come to know that Toyota will combine its platform to produce about 255,000 units of sport utility vehicles and pick-up trucks a year, from 2004, for the domestic and export markets."

Of the Honda plant in Ayutthaya, the Thai media has reported that annual output will be 45,000 vehicles, with full capacity at 70,000.

Which all means big business for IAV as it has contracted to supply engine gas return (EGR) pipes and bellows to Honda. Rameli Musa, Ingress executive vice-chairman, tells Malayisan Business Honda is the company's first major breakthrough in the passenger-car segment in Thailand.

"For this project alone, IAV will be investing about 240 million bhat." IAV already has a spanking new plant costing about 50 million bhat in place.

Apart from Honda, IAV's other new customer is Isuzu, to which it will supply EGR pipes and bellows for its pick-up trucks. According to reports, Isuzu is porjected to produce about 110,000 units, with plans to increase to 130,000. Most will be sold in Thailand and Australia.

IAV currently supplies mouldings and inner sashes to Auto Alliance (Thailand) Co Ltd (AAT), a Ford-Mazda joint venture; and MMC Sittipol Co Ltd (Sittipol), a wholly owned subsidiary of Mitsubishi Motors Corporation of Japan. AAT exported about 42,077 completely built-up (CBU) units in 2001, compared with Isuzu's 48,987.

IAV currently contributes about 10-20 per cent of Ingress' group revenue, of which 50 per cent comes from Malaysian operations. In fact, Ingress is the only local manufacturer, and the sole supplier, of mouldings and weatherstrips to national car-makers Proton and Perodua.

Given Thailand's burgeoning automotive industry, Rameli sees IAV's contribution to group revenue increasing to 50 per cent by 2005. According to the Thai Automotive Industry Association, the number of vehicles produced in Thailand in 1996, prior to the financial crisis, was 559,428 units. This is forecast to increase to 680,000 by 2004.

The German-Thai Chamber of Commerce in Bangkok is more upbeat, putting the figure at 735,000.

Bryan Jamision, area director for Southeast Asia at DHL Worldwide Express in Singapore, agrees. "From ground zero, we have seen the spurt in growth in the Thai automotive industry. We have been part of that growth in terms of transporting components, documents and spare parts in the whole supply chain. In view of this, DHL looks at the auto industry not only in Thailand but the Asean region as our target market."

Jamison says automakers just cannot afford to overlook Asean, with its 550 million population.

Thailand currently has 15 automotive assemblers with a capacity to produce one million vehicles. There are signs more players are coming in, which could mean even better news for IAV. According to news reports, Germany's BMW has chosen Thailand to assemble its 3 and 7 series. Speculation is also rife that DaimlerChrysler and Mitsubishi Motor Corporation may jointly build and export a new compact car from Thailand."

The opportunities are there for IAV as long as it is prudent in its investment and borrowing decisions," notes an industry observer.

Chie K Ngu, head of research at TA Securities Bhd, notes that Ingress' current group borrowings are more or less in line with other automotive players. Its short-term and long-term borrowings as at financial year ended Jan 31, 2002 were RM38.34 million and RM47.12 million, respectively.

Rameli states, "IAV's borrowings for its Honda project alone were about RM17.9 million. We expect that to increase to RM34 million in FY03".

Chie says, "As a growing company and in line with its expansion plan, it's (group) borrowings will increase in tandem. As long as they're manageable, it's okay."

Rameli is cognizant of the opportunities and challenges facing the auto industry. "In the competitive markets of today, every company needs a competitive edge to stay ahead and IAV, for that matter Ingress, is no exception," he says. "Cost-reduction activities such as value-added services and and quality control via research and development (R&D) are inevitable. These activities have to be carried out regularly and continuously to meet customer expectations".
While declining to reveal absolute figures, Rameli puts R&D at ablaut two to three per cent of group revenue.

For FY02, that would mean about RM3-RM5 million, "hich may not be enough in today's competitive automotive sector," says an auto analyst. "A more reasonable amount would be about six to eight per cent of revenue."

Chie feels about five per cent would suffice for the interim.

However, it must be noted that with its manageable borrowings, Ingress has recorded a robust pre-tax profit pf RM37.15 million for FY02 - an increase of about 35 per cent from RM27.35 in FY01. In addition, its cash position increased by 156 per cent from RM4.79 million to RM12.31 million in the same period.

Chie says Ingress' long term relationship with Katayama is a plus factor and that the venture into Thailand, with its good incentives and an eight-year tax holiday, is a good move 'to work with global players and tap the universal '. Thai newspapers have also reported that Alfa Romeo is to manufacture its 156 model at the GM plant in Rayong.

Chie says Ingress, as the sole local manufacturer and supplier of mouldings and weatherstrips, also benefits from Malaysia's protectionist policy.

Based on a market price of RM2.56, Ingress shares were trading at a historical price-earnings (PE) of 9.1x FY01 earnings. Chie forecasts a PE of 6.2x for FY02 and FY03. Based on its growth potential, he says Ingress' stock is fairly valued.

IAV's inception actually began with Ford, when the latter visited Ingress Precision Sdn Bhd - an Ingress subsidiary located in Nilai, Malaysia - in 1996 to search for potential suppliers for its FY01 earnings. Chie forecasts a PE of 6.2x for FY02 and FY03. Based on its growth potential, he says Ingress' stock is fairly valued.

It has since come a long way. "IAV, which manufactures door sashes, co-extruded mouldings, weatherstrips, bellows and pipes, has certainly hit its mark in Thailand," notes Rangsan Phucharroen, AAT's buyer, production parts purchasing. Interestingly, IAV was awarded a QS 9000 award for quality by AAT.

With the Thai operations showing so much promise, Ingress may yet begin another new chapter reestablishing itself in Indonesia, or moving on to China or India.