THE ABOVE IS certainly not most people's idea of a generator set. I certainly didn't expect it to be of that size.
That was one of the insights I picked up last week during a visit to the Johor factory of Mech-Power, a wholly-owned subsidiary of XMH Holdings since Oct last year. (See: XMH acquires Mech-Power Generator for $17.4 m in earnings-accretive deal)
Mech-Power, founded in 1983, custom builds generator sets for a diverse range of clients. The significant ones own data centres, a rapidly growing sector in Singapore.
Mech-Power derived about 50% of its revenue from data centres in the past 2 years.
Some of the biggest contracts awarded to Mech-Power have run into tens of millions of dollars for multiple gen-sets to be delivered over more than a year.
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"From what we know, for the next two years, there are many data centres coming up in Singapore and many projects such as new hospitals," said Cliff Loke, MD of Mech-Power.
Big gen-sets are usually housed on roof-tops of buildings or in basements to save on the use of expensive commercial space. They are on standby mode, and will kick in to supply electricity to ensure business continuity if there is a power outage.
Mech-Power, which employs about 60 staff in Johor in its 150,000 sq ft factory (equivalent to about two football fields in size), has more than sufficient capacity to produce S$40-50 million worth of gen-sets a year.
A key strength lies in its core of experienced workers, said Cliff. "We have a stable workforce. Most of the supervisors and higher-ups have been with the company for more than 20 years."
This company commands about 50% of the market share in Singapore, focusing on high-end gen-sets instead of the mass produced types that most people have seen around.
About 80% of its revenue is derived from Singapore.
Cliff said Mech-Power is targeting contracts from Myanmar, and particularly, Indonesia where its new parent, XMH, has established business connections.
Last month (June), it was announced that Mech-Power had won a multi-million deal to supply gen-sets to a customer in Indonesia.
In a nutshell, Mech-Power's leading industry position derives from its:
a) low-cost manufacturing site in Johor;
b) experienced skilled workforce;
c) track record of having delivered gen-sets to many high quality customers.
For an idea of Mech-Power's growing profitability, consider that Mech-Power's net profit in FY13 was $1.7 million but its previous owners (Cliff Loke and wife) had provided a net profit warranty of S$6.9 million over FY14 and FY15 as part of XMH's agreement to buy Mech-Power. That order was part of a slew of 5 orders worth a total of S$10.57 million that Mech-Power has clinched in April-June 2014, which is Mech-Power's 1Q of its FY2015.
For UOB Kay Hian's visit report, click here.
For XMH's latest FY performance, see: XMH: Expands outside Indonesia, proposes 1.2ct dividend
Photos by Leong Chan Teik