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NRA Capital Pte Ltd

Written by: Justin Chan

Friday 6 Nov 2015

Miyoshi Limited – FY15 analyst briefing

Cost rationalization brings Miyoshi back to full year net profit

Miyoshi moves further along its diversification strategy away from precision engineering as it looks to partner with another Chinese Light Electric Vehicle company.


Miyoshi Limited held an analyst briefing to discuss its results for the financial year ended August 2015 (FY08/15). Excluding discontinued businesses, Miyoshi revenue fell from S$57.0m in FY14 to S$54.4m in FY15. The company achieved a full year total net profit of S$627,000 for FY15 despite this fall in revenue, which is an improvement from its FY14 net loss of S$17,000. Profitability was largely achieved as a result of operating cost rationalization, which allowed profit before tax to increase 287.1% to S$1.2m from S$0.3m.

Miyoshi has been facing difficulty over the past few years, as increasing competition in the precision engineering market have resulted in Miyoshi losing market share. The company has engaged in a variety of strategies to revitalize the company, primarily by expanding into new businesses going forward.  

Key points from the analyst briefing

-          Miyoshi is in the midst of a restructuring exercise by which it aims to convert more of its existing plant assets to property assets for rent. In this way Miyoshi aims to improve its utilization rate of retained manufacturing and property assets.

-          Data storage revenue fall 21% year on year from S$34.3m to S$27.1m. Miyoshi management states that the fall came about as Miyoshi made a conscious decision to cease production on certain components that have become increasingly cost ineffective for them to manufacture. Other segments such as consumer electronics and automotive have also fallen, partially due to the disposal of Giken in 2014, but also due to continuing weaknesses in those segments. Going forward, Miyoshi has been securing ad hoc orders for the consumer electronics section, which will provide a limited amount of revenue visibility into FY16.

-          Investment Properties increased to S$7.4m from S$0.8m, due to a S$3.0m investment in Philippines and a reclassification of the Senai property from PPE to Investment Property. The reclassification of Senai came about as the sale of the asset has not been completed, owing to circumstances beyond the group’s control.

-          Despite returning to profitability, the cash flow for Miyoshi was put under stress, due to working capital requirements. Miyoshi supplanted its cash position by increasing its borrowings, going from S$3.3m in FY08/14 to S$6.0m in FY08/15. As a result of the expansion of debt, FY08/15 gearing stands at 0.11x compared to 0.06x for FY08/14.

-          Miyoshi is expanding into the Command, Control, Communication on Cleantech (C4) segment in order to develop and customize portable power and telesurveillance system, while also expanding its investments in the LEV sphere. Miyoshi expects these businesses to contribute to revenue as the business lines mature


Entry into Light Electric Vehicles

One of the main growth propositions for Miyoshi is its entry into the China Light Electric Vehicle (LEV) market. Light Electric Vehicles are basically plug-in electric vehicles that are significantly cheaper than post-subsidy Electric Vehicles or internal combustion engine  vehicles. LEVs in China are typically priced between RMB18,000-RMB40,000, compared with Electric Vehicles that retail at prices upwards of RMB140,000 or internal combustion engine vehicles that start at RMB50,000 when looking only at hatchbacks.

The trade-off in this case is that LEVs have lower performance standards and are not allowed to operate on certain roads, such as highways. Due to limited regulation on LEVs, LEVs typically do not carry licence plates and hence do not qualify for insurance coverage. Hence, the target market for LEVs are either entry-level purchasers buying their first car or light users that only travel within a 50km to 100km radius. Currently, the maximum mileage per charge is about 200km.

We understand that some prefectures in Fujian, such as where one of Miyoshi’s LEV partners is based, have started issuing licence plates for LEVs. As such, regulation is catching up in this area. Having your customers drive licenced LEVs confers a sense of legitimacy and will help in future market expansion.  

Currently Miyoshi has a 55% equity stake in Green Galaxy Limited, which assembles and sells LEVs in Yingtan, located in the Jiangxi province in China. This segment is still underdeveloped, as Miyoshi is still in the process of obtaining the operating licenses and building up the manufacturing capabilities for the LEVs under the Green Galaxy partnership.

In this vein, Miyoshi has a non-binding Memorandum of Understanding with Core Power (Fujian) Electrical Co. Ltd (CPL), whereby Miyoshi would acquire up to 49% of the entire share capital of Core Power (Fujian) New Energy Automobile Co. Ltd, a newly formed joint venture company. . CPL has an existing assembly line for the sale of licensed LEVs in Fujian province, and provides an opportunity for Miyoshi to enter a strategic relationship with an active LEV entity that is in the growth stage of its development cycle. For its part, CPL aims to leverage on the existing sales team for Miyoshi to strengthen its sales networks and increase the sales volume of the vehicles developed by CPL, as well as potentially leveraging on the manufacturing knowledge of Miyoshi.


Though electric vehicle development in China is supported by the government as part of the State Council’s energy-saving and new energy automotive industry development plan (2012-2020), we find that the Miyoshi-affiliated LEVs do not fall in the category of vehicles receiving funding assistance under the aforementioned directive, as the LEVs do not have the top speed or type of battery necessary for the vehicles to qualify for the development perks affiliated with the plan. Nevertheless, the development of infrastructure to support electric vehicle uptake would support the uptake of LEVs. As it stands, regulations surrounding LEVs are effectively dictated by individual provinces, which accounts for the variation in standards surrounding LEV manufacturing and sale. Moreover, we feel that the level of technology used in LEVs is still relatively low and that the development of LEVs over time may help to offset some of these disadvantages.

Our view

The main issue facing Miyoshi in the immediate term is the poor performance of the manufacturing business that it operates within. We find that the data storage space that Miyoshi normally operates within will face continued pressure as evolving technology standards increase both the viability of alternatives to existing physical requirements as well as increase quality requirement thresholds. The increase in manufacturing quality requirement thresholds would raise costs to a potentially untenable degree, which we have to bear in mind when looking at the performance of Miyoshi over FY08/16.

One of the main positives Miyoshi has is its healthy balance sheet. The total borrowings for Miyoshi are relatively low, to the point where its net gearing is 1.3%, with an 11x interest cover ratio. This balance sheet gives Miyoshi sufficient room to engage in its acquisition strategies to drive growth forward.

The long term growth proposition for Miyoshi is its entry into the LEV space. The Green Galaxy partnership is still in the development phase due to the hurdles involved in marketing and manufacturing the class of vehicles in the Green Galaxy portfolio. However, the experience Miyoshi has garnered in the course of marketing and developing the sales networks for Green Galaxy would serve it in good stead should the tie-up with CPL go through. We note that CPL has an existing assembly plant and has existing licenses in place for its vehicles.

In our view, a successful tie-up between CPL and Miyoshi would allow Miyoshi to realize value from its investment at an earlier than if it were to go into developing and bidding for production licenses by itself. We posit that having an earlier entry into the LEV space would give Miyoshi a chance to grow multiple aspects of its competitive advantage, and that Miyoshi would be able to tap on its growing expertise in the sales and development of LEVs to expand into multiple provinces. 

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