Photo: Leong Chan Teik
LEADING SOUTHEAST ASIAN wholesale tyre distributor, Stamford Tyres, met investors at CIMB Securities yesterday to explain its business model.
Stamford Tyres is the sole distributor for major tyre brands in 9 countries: Singapore, Malaysia, Thailand, Indonesia, Hong Kong, China, India, Australia and South Africa.
It represents Continental, Falken and Toyo. In addition, it also carries its proprietary Sumo range of tyres produced by subcontractors.
Its broad range of tyres caters to various vehicle categories and price tiers.
Continental is in the top price tier – it is a German brand with European specifications and used as original equipment tyres for luxury automobiles such as Porsche, BMW and Mercedes-Benz.
Falken is in the upper price tier – it is a leading Japanese brand made and owned by Sumitomo Rubber Industries.
Toyo is a major Japanese brand with a full range of off-the road (OTR) tyres for mining and construction equipment.
Photo by Leong Chan Teik
Its Sumo Firenza tyre projects a young and trendy image for those with a tight budget.
Stamford carries tyres for passenger cars, trucks, as well as light commercial vehicles, agricultural vehicles and off-the-road vehicles.
As the global economy recovered in 2009, its FY2010 revenues had expanded 4.5% to S$310.2 million, compared to a contraction of 9.5% in FY2009, which ended on 30 Apr 2009.
Below is a summary of some of the questions raised by investors and the replies given by Stamford Tyre's president, Mr Wee Kok Wah, and its CFO, Mr Conson Sia:
Q: What was your forex gain this year?
It was S$1.7 million, versus a forex loss of S$5.6 million in FY2009. We operate in 9 countries where we have sole distributorship rights to major tyre brands. Our current assets are held in the respective countries where our operations are domiciled.
The forex gains and losses arise when we translate these currencies back to SGD. A lot of this is unrealized.
Q: Why did your receivables that are past due more than 3 months increase substantially?
This happened primarily in 2009 because when the crisis hit, credit insurance became unavailable. We supported our long-term distributors by restructuring their receivables.
Q: Why did your gross margins dip in FY2010?
Increases in prices of rubber and steel resulted in an increase in the purchase price of our tyres. We could not pass on the increases immediately.
Q: Can you pass all the costs hikes to customers?
Yes, we can but it takes 2 to 3 months for the dealers to adjust their retail price.
Q: What are the advantages of having proprietary brands?Our proprietary brands allow us to sell outside the 9 countries where we have been appointed sole distributor by the major brands.
Q: How does Stamford compare with YHI?
We are quite comparable. They have capacity for about 5 million wheels, which is bigger than ours. But our wholesale distribution business is bigger. They distribute Yokohama tyres while we distribute tyres produced by Sumitomo. However, we have a retail wing as well as truck value-added services while they are purely wholesalers.
Like us, they have a strong foothold in Singapore and Malaysia. However, they are stronger in Australia, as they have a wider product range and started there much earlier than us. We are trying to build our product line and foothold in Australia.
Q: Do you pay dividends every year?
Yes, with the exception of FY2009.
Q: Why did you expand to South Africa? Please explain your business model there.
Our subsidiary in South Africa is wholly-owned. We were already there in the 1990s distributing Falken tyres. This was, however, aborted until last year when Sumitomo reappointed us as South Africa’s sole Falken distributor. So far this region has proven quite lucrative.
However, we are exposed to currency risk because we still do not have bank credit lines there. To manage risk, 90% of our receivables and inventories there are currency hedged. South Africa has a very strict and well-regulated economy. We have no problems remitting cash receipts back to Singapore.
Q: Is there any conflict of interest in having one’s own proprietary tyres and being a distributor of major brands?
For our own brand, Firenza, in Singapore, for example, we appoint a sub-distributor to compete with our own company. In some markets, there is direct competition with the brands we distribute but our principals are confident of their products.
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