PCCS finds better solution in healthcare and hire-purchase
PCCS Group Bhd has long been known as a clothing manufacturer and labeller, but with the arrival of the second generation of the family business, the focus of the group is starting to change.
With nearly five decades of apparel manufacturing experience, PCCS has been a supplier to many brands including Puma, Adidas, Li-Ning, H&M and Decathlon. In addition to Malaysia, the group’s textile activity is also present in China and Cambodia.
PCCS is also one of the largest label and packaging manufacturers in Malaysia, through its subsidiary Mega Label (M) Sdn Bhd, established in 1987.
Supported by these two activities, the group achieves an annual turnover of over RM400mil to RM500mil, but the turnover has been declining in recent years.
The group has not been spared the impact of the Covid-19 pandemic and has recorded losses over the past two quarters.
For the first nine months ended December 31, 2020, PCCS reported a net loss of RM 2.81 million compared to net profit of nearly RM 6 million a year earlier.
The main problem with PCCS is that its main contributor to revenue – clothing manufacturing – delivers only low single-digit net profit margins.
The labeling and packaging sector, meanwhile, was in deficit.
Group chief executive David Chan Wee Kiang, who was promoted to the post in November 2020, acknowledges that PCCS’s low margin conditions have affected the group’s profit trajectory.
Wee Kiang is the eldest son of PCCS founder and major shareholder Chan Choo Sing.
Choo Sing is also currently the Executive Chairman of PCCS. The Chan family controls over 40% of the PCCS.
Looking ahead, Wee Kiang believes the group needs a new growth strategy.
“Diversification is the only answer, especially in high-margin companies that generate stable profits,” he tells StarBizWeek.
Therefore, it is no surprise that PCCS has announced its entry into new business segments since last year, namely medical device distribution and lease finance. “Both companies would be able to give the group commendable net profit margins of 20% to 30%. , compared to the group’s current margin of less than 5%.
“They will also be the main contributors to PCCS revenues in the future. Over the next two years, the medical device segment is expected to generate more than 30% of the net profit, while the hire-purchase business could contribute around 20%.
“Nevertheless, I remain committed to the existing activities of the group,” he says.
In April of this year, PCCS announced that it would invest RM 4 million to enter the used vehicle finance and insurance business, focusing on the Johor and Melaka markets.
This activity will be carried out through Southern Auto Capital Sdn Bhd, a joint venture in which PCCS has an 80% stake, the balance of 20% being held by Justin See Kok Wah, advisor to 365 Capital Sdn Bhd, a company mainly engaged in the sector. used car financing.
Wee Kiang says the group wants to capitalize on See’s long experience in used vehicle financing and auto insurance.
“We believe the used car finance segment is under-exploited in Malaysia, which is why we want to capitalize on the available market opportunities. The hire-purchase activity should generate its first profit in the first quarter of 2022, ”he adds.
Regarding the medical device distribution business, which was first announced in December 2020, Wee Kiang says it will take around two years to generate revenue and make its first profit. “In order for us to distribute medical devices, we must first obtain approvals from medical device regulators in the markets we intend to enter.
“The approval process will typically take one to two years, depending on the jurisdiction,” he says.
Last week, PCCS, through its subsidiary La Prima Medicare Pte Ltd, entered into an exclusive agreement with Shanghai Shenqi Medical Technology Co Ltd to distribute the latter’s medical devices in Asia-Pacific, excluding China and Japan.
The deal will be in effect until May 21, 2023 and La Prima has the right to extend the deal for two more years.
The agreement allows PCCS to distribute Shenqi’s medical devices related to cardiology or heart disease.
These include the medical diagnosis and treatment of congenital heart defects, coronary artery disease, heart failure, valvular heart disease and electrophysiology.
Founded in 2014, China-based Shenqi is primarily engaged in the development of minimally invasive surgery products and devices, enabling safer and more reliable cardiovascular surgeries. Its products are primarily designed for interventional cardiovascular and peripheral vascular interventions.
“We are already in the process of registering Shenqi products in some of the ASEAN countries. We will make the relevant announcements if necessary, ”he says.
Considering the increase in cardiovascular disease around the world, including among the younger population, Wee Kiang says this has created a huge market for innovative and niche medical devices.
“PCCS hopes to follow up on this request, in partnership with Shenqi.
“We’re not just another company getting into the medical movement. We are determined to expand the medical business of PCCS, ”says Wee Kiang.
He also points out that among the initial products that would be distributed by PCCS is the drug-coated balloon catheter developed by Shenqi (DCB).
The DCB Catheter is an alternative to drug eluting stents that are used to treat coronary artery disease. The product was registered with the National Medical Products Administration of China in December 2019.
Wee Kiang describes the DCB catheter as a “star product” of Shenqi in China, given the huge demand. He hopes to replicate the success by introducing the DCB catheter to the Asia-Pacific markets.
In addition to the medical device distribution business, Wee Kiang says PCCS is working on developing its own medical devices.
“Research and development is still ongoing, so I couldn’t provide more details. But once everything is finalized, it will be another good source of income for the group with higher margins as the products are developed in-house, ”he adds.
Wee Kiang’s ambition to make PCCS a diverse group is supported by his track record. At the end of December 2020, the group is in a net cash position, with almost RM 60 million in cash and cash equivalents against RM 53.1 million in total borrowings.
Its 29% debt ratio, which Wee Kiang describes as optimal, would also allow PCCS to seek bank financing if necessary.
This gives the group a lot of leeway to grow organically and inorganically over the longer term.