Thursday, February 18, 2010


Usually the ones I like won't be right at the top of the volume list, so this is a first. Eti Tech Corporation is a battery management systems company that is involved in the research and development, design and marketing of battery management systems for rechargeable energy storage solutions using polymer lithium-ion based energy cells for electronic applications. Its products include nano mobile charger, green genset and portable power pack for notebook personnel computer. The company primarily operates in Malaysia, where it is headquartered in Kulim.


ETI has mapped out its development plans to move from the lowpower storage solutions towards medium- and high-power storage applications. Recognising the growing demand for EV amid global concerns for greenhouse gas emissions, ETI is currently developing Lithium-ion Polymer (LiPo) based automotive batteries for electric scooters and EV. Even our beloved Proton is building an electric vehicle soon. ETI is actually in a strong position to provide the battery solution.

In the other segment, ETI is capitalising on the replacement market for lead acid batteries and small diesel generators in various retail, commercial and industrial applications e.g. in the telecommunications, leisure and catering industries which may depend on mobility or locations where there is no ready supply of electricity. The recent launch of “Green Genset” to replace diesel generators such as those used by the food catering industry, is only an early indicator of the company’s growth plans.

Catalyst #1: It is already more than just a R&D outfit as they have been profitable for 3 years already, and earnings will jump significantly in 2010 owing to a good market acceptance of their products, thus providing an enlarged earnings platform. FY10-11 earnings are slated to grow 75% and 48% p.a. respectively driven by: 1) contribution from higher-margin medium-power battery systems; and 2) stronger demand for its low-medium battery system due to the launch of new ‘Green Genset’.

Catalyst #2: ETI has entered into an MOU with ZAP to develop and incorporate its LiPo (lithium polymer) batteries for ZAP’s full range of electric scooters (Zappy, Zapino and ATV). ZAP plans to replace its electric scooter’s lead acid battery with LiPo batteries as Lithium powered scooters have been proven to achieve higher driving range/charge as well as higher speed (vis-à-vis lead acid battery technology). ZAP is a pioneer in electric transportation since 1994, and it manufactures and sells electric cars, scooters, bicycles and other vehicles to 75 countries.

Catalyst #3: Distribution, Design & Assembly - Under the MoU, ZAP will award ETI the rights to design and assemble its electric scooter/EV for Malaysia and the Middle East market. ETI would need to identify and appoint a local motorcycle assembler (i.e. Modenas, Naza and Honda) for the design and manufacturing of the electric scooter. ZAP aims to assemble its electric scooter/EV (powered by LiPo batteries) given the China’s quality and reliability issues. Note that
currently, ZAP’s electric scooters/EVs are assembled in US, Uruguay and China. This development would raise ETI’s profile in the EV (electric vehicle) battery market and thus enable it to penetrate into more lucrative EV markets going forward.

Catalyst #4: Strategic Shareholder, Niche Player & Patented - ETI’s venture into EV battery system has attracted investments from the Al-Yousuf group (which holds a 15% stake in ETI itself), given the potential synergistic benefits for its investment in electric car manufacturer, ZAP. A pioneer in electric transportation since 1994, ZAP manufactures and sells electric cars, scooters, bicycles and other vehicles to 75 countries.

Apart from ETI, there are only a handful of EV battery system players in the world i.e. BYD (China), Ener1 and A123 Systems (US), as well as NEC, Sanyo and LG (Japan and Korea), although auto companies like Toyota, Honda, Nissan and General Motors are aggressively trying to develop their own mass-market EV models. In mid-20008, ETI filed patent applications in Malaysia for the EV Battery including the industrial design and software-driven cell balancing system and method (i.e. the BMS).

Right Management - KK Lee is managing director and the major shareholder. ETI’s technical division is led by executive director and chief technology officer, YK Khor, who has worked for Rolls Royce plc developing military aircraft and Formula 1 racing car parts, as well as chief engineer of National Semiconductor (M), engineering group head for Sony Corporation (M) and engineering director of Flextronics Technology (M). He manages a team of 14 engineers from various multinational companies including Sony, Nortel, Motorola and Intel.

Catalyst #5: Strong financial metrics. The following are the strong metrics for 2007,2008, 2009 and 2010 (estimate) -
Gross margin (%) 31.4 / 32.7 / 38.2 / 43.7
EBITDA margin (%) 27.3 / 28.6 / 34.7 / 40.4
Net profit (RM million) 20.1 / 21.7 / 39.2 / 58.0

Major Shareholders: (%)
Lee Kah Kheng 17.2
Dennis Chuah 15.8
Al Yousuf LLC 15.0
Emirates Investment & Development Co 6.55
Chng Kong San 5.8

Following its attractive 2 for 1 bonus in October last year, the share price went on a sharp correction from 84 sen to nearly 40 sen. That could largely be due to over-exuberance buying prior to the bonus and possibly coincided with a sell down by Emirates Investment & Development which used to hold a lot more than just 6.5%. That out of the way, I see ETI regaining their lost ground in the coming weeks.

Catalyst #6: Potential New Market Leader - The New Economic Model will likely also be the over-arching theme for the Tenth Malaysia Plan (10MP) to be launched in June 2010. The New Economic Model is “aimed at shifting onto a high growth path and high income economy, driven by creativity, innovation and high value-add services”. We believe the plans include: 1) Value-added manufacturing; 2) Higher value services; 3) Renewable energy. The concepts will be more attractive to smaller listed companies as the net effect on them will be greater. Safe to say that ETI will be one of the main beneficiaries, and judging from their volume breakout, ETI could very well be the new market volume leader if a rally based on the New Economic Model comes into fruition.

The risks to ETI is that many of their ventures are still in the early stages, which can go nowhere or elevate their earnings platform positively. That is part and parcel of investing in small caps, but it looks good considering its debt free, profitable and with numerous catalysts in the pipeline.

p/s photos: Ririn Dwi Aryanti

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

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