FSBM embraces technology-driven future, investing in AI and IoT

This article was published in The Edge Malaysia Weekly on 1 July – 7 July 2024.

After about five years as a Practice Note 17 (PN17) company, FSBM Holdings Bhd (KL:FSBM) emerged from financial distress after Bursa Malaysia approved its application in mid-June.

The mainland-listed company has undergone major transformation in recent years and is now a different animal, said its new managing director, Pang Kieu Kung.

FSBM has shifted its business model to provide software-based technology solutions primarily targeting the manufacturing and semiconductor industries. Previously, it was the sole distributor of Fujitsu products in Malaysia.

“FSBM is now a completely different company,” Pan explained in an interview with The Edge. “We are now an asset-light company providing software solutions including Internet of Things (IoT), data analytics and support services focused on the semiconductor industry.

“We plan to integrate artificial intelligence (AI) into our products soon. While we are cautious about overusing terms like IoT and AI, they are essential elements for local manufacturers to improve their operational efficiency and are fully aligned with the goals of Industry 4.0.”

FSBM currently supports 80 SMEs in Malaysia. “The next step is to expand our solutions to larger manufacturing companies, especially in the semiconductor sector,” says Pang.

Realizing the potential of AI in the country, FSBM has positioned itself as a catalyst for AI adoption. The group is in negotiations with US-based technology companies to become distributors of AI hardware and software solutions.

“This is aligned with the ongoing data center development in Malaysia and the government’s efforts to advance the domestic semiconductor sector value chain,” Pang said, declining to name the U.S. company because the negotiations are ongoing. He expects the deal to be signed as early as the end of July.

FSBM is already working with several companies to expand its technology solutions portfolio.

Last month, the group signed an exclusive distribution agreement for its voltage surge protectors (VSPs) with Taiwan-based T-Parus Trading Co Ltd. The technology is known for its versatility, ensuring uninterrupted power supply and protecting sensitive electronic equipment from damage.

“T-Parus is a leading supplier of advanced systems specializing in the semiconductor industry in Taiwan,” said Pan. “We are honored to be able to distribute their innovative solutions in Malaysia. As Malaysia strives for advanced packaging in the semiconductor sector, VSPs are essential to maintain operational continuity and protect sensitive equipment. In addition, uninterrupted power supply is essential for data centre operations.”

T-Parus’ Taiwanese clients include semiconductor giants such as Taiwan Semiconductor Manufacturing Co., Ltd., ASE Technology Holdings Co., Ltd. and Siliconware Precision Industries.

At the signing ceremony, FSBM forged a collaborative relationship with Unitrade Industries Bhd (KL:UNITRAD) to expand the market reach of its VSP and energy-saving compressors to commercial and industrial customers across Southeast Asia.

“We understand that Unitrade already provides steel pipes for data centers, and working with them will enhance our product offerings,” Pan said.

From distributor to financially stable technology company

When FSBM was the sole distributor of Fujitsu products in Malaysia, it relied on the government for most of its contracts, after which it began to experience sluggish revenues and, even worse, mounting losses.

Founded by Datuk Tan Hock San, 71, now a non-independent non-executive director, FSBM was dropped to PN17 status in 2019 after its external auditors issued warnings on its financial statements for insufficient audit evidence. Tan currently holds just 2,400 shares in the company, less than 0.01%. He will no longer be a major shareholder in FSBM in March 2022.

The company completed its formalisation plans in December 2023 after raising about RM12 million through new share issues over the past five years. As part of the fundraising process, Dagan Nextenge Bhd (KL:DNEX) executive chairman Tan Sri Syed Zainal Abidin Syed Mahmed Tahir acquired 30 million shares or 12.68% in FSBM, becoming a beneficial shareholder.

At the same time, Pang and FSBM’s chief technology officer, Low Kam Wei, also increased their stakes in the company during the acquisition. After Pang acquired 16 million FSBM shares, his shareholding in the company increased to 7.94% or 18.79 million shares, while Low purchased 14 million shares or 5.92%. The two are estimated to have paid RM1.28 million and RM1.12 million respectively.

Pan first appeared on FSBM in October 2021 when he was appointed executive director of the company, and then appeared as a shareholder in May 2022 after converting his warrants into 2.79 million shares, or 1.86%, of the company. Then in May this year, Pan was reappointed as managing director.

FSBM’s share price was 43 cents per share when it left PN17, but fell to 32 cents at last Thursday’s close, giving it a market capitalisation of RM157.9 million.

Viewing the data center as a “game changer”

Pang is quick to point out that since its restructuring, FSBM has achieved six consecutive quarters of organic profitability since it began focusing on smart manufacturing technologies. As at 31 March 2024, the company boasts a net cash balance of RM13.22 million.

The company’s performance for the first quarter of 2024 was encouraging, with the company recording a net profit of RM654,000 on sales of RM3.38 million. This compares with sales of RM3.11 million and net profit of RM217,000 in the same period last year.

Earnings per share were 0.14 cents in the first quarter of fiscal year 2024. Assuming 20% ​​quarter-over-quarter earnings growth for the remaining three quarters, FSBM’s projected EPS would be 0.168 cents in the second quarter of fiscal year 2024, 0.20 cents in the third quarter of fiscal year 2024, and 0.24 cents in the fourth quarter of fiscal year 2024. Projected annual EPS would be 0.748 cents, implying the company is trading at a price-to-earnings ratio of 43.45.

While Pan acknowledges the challenges of getting businesses to adopt IoT and AI, he emphasizes FSBM’s customer-centric approach, providing services that address specific needs. He is keen to highlight the cost-saving benefits and educate potential customers on the importance of these systems. FSBM is actively seeking partnerships to further enhance its services.

“We first need to understand our customers’ pain points,” Pan explains. “IoT enables manufacturers to achieve optimal machine performance through a more systematic and automated approach. Previously, machine issues could only be detected manually at a later stage. With IoT, we can instantly identify issues based on the output of each machine.

“After all, inefficient operations are costly for manufacturers. We need to get more companies to understand the importance of implementing these systems,” said Pan, who is optimistic that FSBM can continue to drive its smart manufacturing business this year and into fiscal 2023.

While he acknowledges that data centre development in Malaysia is at an early stage, he expresses confidence that providing solutions to the sector will be a game changer for the group. “Data centres in Malaysia are still at an early stage of development, but we are committed to providing solutions to them. For example, working with T-Parus and Unitrade will be a game changer for the group.”

Malaysia currently has more than 40 operational data centers, each with a capacity ranging from 100 to 150 megawatts, but upcoming projects are expected to add an additional 1,400 megawatts over the next five to 10 years due to low land and energy costs.

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