Risk factors from the Company’s business operation that might significantly affect the investors’ returns can be summarized as follows:
Risk of fluctuation of raw material
The major raw materials of the Company are copper, aluminum, brass, metal and plastic. Copper, the main raw material, is the commodity product imported from other countries. Its price is fluctuated in relation to the global price ( LME : London Metal Exchange ) . The fluctuation of the copper price may affect the production cost of the Company to be higher. However, the management of the Company has set the guideline to mitigate the risk of copper price fluctuation in the future by:
- Have meeting with the customer to discuss on copper selling price and it is agreed to use Rolling price, the average selling price of the previous quarter or otherwise use the price of the previous month to dictate current price. Currently, the Company buys copper from 2 major suppliers abroad and has reserved another 2-3 domestic suppliers to avoid risk of material shortage.
- Each order for copper is based on the production plan given by the customer in the meeting listing details for number and quantity for order in each month.
- Supervise order placement and inventory management to maintain least amount of inventory in hand.
- In case the customer reserves copper from supplier and asks the Company to place order, the Company shall do so at the price reserved by the customer and use such price in determining selling price to the customer in order to avoid price risk.
Risk of dependency on a major customer
The Company has four major customer whose its revenues are at 54% of total revenues. If these customers terminates the appointment or materially decrease its purchase volume, the performance of the Company may be affected. Nevertheless, the Company has good relationship with such customer. The Company is able to respond to its demand for the product quality, reasonable price, punctual delivery and the effectiveness of pre-post sales service. Therefore, the customer is confident with the Company and there is potential to do more business together in the future. Since the beginning, the Company and the customer carry out product development (R&D) and production plan together. Such cooperation strengthens the relationship. In order to diversify its revenues structure, the Company procures new customer by increase customer base of ODM and co-develops the product with the customer. Besides, the Company has increased its customer base in the other group. Therefore, its retail customers have increased considerably from the previous year. The top executives has implemented the policy to find new customers per current customers and keep the ratio of 30 : 70 including considering the effect on the ratio of each major customer, if the base is moved, it must not affect the company’s profits more than 50%.
Risk from competitors from abroad investing in Thailand
According to the implementation of ASEAN Economic Community (AEC), more foreign investors from China, South Korea and others have come to set up production base in Thailand to enjoy tax incentives and this has resulted in more competition and impact on the Company’s operation. However, the management has already made a plan for mitigating possible risks as follows:
- Quality aspect
try to maintain and control product quality to meet the customer’s need.
- Delivery aspect
on time delivery
- Price aspect
review excess capacity in order to get full capacity of the machine on 24-hour basis, offer low cost policy to the customer in order to persuade the customer to increase their order, extend business opportunity to the extent that the total production and revenue will rise with surplus profit to compensate fixed cost and ultimately get better operation figures. The customer will get reasonable price to maintain their competitiveness.
- Service aspect
respond to information and customer’s need immediately before and after sale, get customer’s impression through its readiness for help and cooperation, build up good relation and make them feel that the customer are more like the Company’s partner.
Risk of technological change impacting on business
Today consumers want equipment and device which can facilitate their daily life and also long for modern technology. The manufacturer therefore must adjust and change their methods of manufacture by designing and developing to be modern and be able to respond to customer demand. This can increase a higher competitive situation which focuses on quality, quick response and competitive price. The method of manufacture will be changed and develop continuously. If a company do not study and explore new technology and methods to prepare for supporting the diversity of production, it might lose business opportunities.
Our company established the research and development institute to study and provide new technology to support the departments of company’s group to cumulate the old products and increase business opportunities by developing new products and designing products with customers.
Risk of fluctuation of foreign exchange rate
The Company imports raw material and exports its products with credit term around 30-60 days, the fluctuation of foreign exchange rate may affect the Company’s operation. The raw material cost in foreign currency is 15% of Purchase of raw materials and sales in foreign currencies 8% of total sales.