Risk Factors

Applicants for the Public Issue Shares/Offer Shares should carefully consider the following factors, which may not be exhaustive and which may have an impact on the future performance of the Group, in addition to the olher information contained elsewhere in this Prospectus, before applying for the Public Issue Shares/Offer Shares. 4.1 NO PRIOR MARKET FOR COMCORP SHARES Prior to this IPO, there was no public market for Comcorp Shares. There can be no assurance that an active market for Comcorp Shares will develop upon its listing on the Second Board of Bursa Securities or that such market, if developed, will be sustained. The issue/offer price of RMO.85 for the Public Issue Shares/Offer Shares has been detennined after taking into consideration a number of factors, including but not limited to, the Group’s operating and financial history and conditions, the prospects of the industries in which the Comcorp Group operates, the management of Comcorp and the prevailing market conditions prior to the issue of this Prospeclus. The price at which Comcorp Shares will trade on the Second Board of Bursa Securities after the Listing may be influenced by a number of factors including, amongst others. the depth and liquidity of the market for Comcorp Shares and investors’ perceptions of the Comcorp Group. There can be no assurance that the issue/offer price of the Public Issue Shares/Offer Shares will correspond to the price at which the Shares will trade on the Second Board of Bursa Securities upon or subsequent to the Listing.
4.2 BUSINESS RISKS The Comcorp Group is subject to cenain risks inherent in the ICT, EMS and public safety industries. These include, but are not limited to, labour and supply shortages, competition, demand for its services and products, equipment and software obsolescence, changes in general economic, business and credit conditions, entry of new competitors, foreign exchange rate fluctuations, introduction of new technology, services and products and changes in industry and government policies. Although the Group seeks to limit these risks through, inter-alia, development of new services and products, monitoring and enhancement or the use of the latest technology available, investing in R&D, diversifying its pool of suppliers and customers and expansion of both existing and new markets to countries such as China and Republic of Korea, there can be no assurance that any change in the above risk factors will not have a material adverse effect on the Group’s business.
4.3 DEPENDENCE ON CUSTOMERS 4.3.1 Absence of Long-Term Contractual Agreements with Customers Due to the nature of the ICT, EMS aud public safety industries, there are no long­tenn contractual agreements between the Comcorp Group and its customers as contracts are secured on a project basis. The period of its current contracts-in-hand, which include overseas contracts, is between one (I) year to three (3) years. The lack of long-term contractual agreements may affect the sustainability of the profits of the Comcorp Group. The Group seeks to limit this risk by, amongst others, providing quality services and products to its clientele, applying relatively high level of technology specifications and know-how, which have eamed the Group recognition and confidence from its customers, eosuring strict compliance with agreed customers’ delivery/completion schedules and nurturing strong relationships with its existing customers via the provision of product enhancement and related after-sales service to its customers. Further, the Comcorp Group also employs various strategies to broaden its clientele base by venturing into new markets such as China and Republic of Korea, to bid for new projects. 4. RISK FACTORS (CONT’D) 4.3.2 The successful implementation ofthe above measures has enabled the Group to enjoy long and cordial working relationships with its major customers, the details of which are set out in Sections 4.3.2 and 6.4.10 of this Prospectus. Further, the numerous awards received by the Group from its customers (the details of which are set out in Section 6.4.16 of this Prospectus) as well as the securing of contracts with new customers by the Group, allest to the ability of the Group in maintaining as well as expanding its existing customer base. Notwithstanding the above, there can be no assurance that with the above measures, the Group will be able to retain or expand its customer base or that it will be able to continue to procure projects from these customers. Dependence on Key Customers Due to the nature of tbe industry mix in which the Group operates, namely lCT, EMS and public safety, the Comcorp Group has a limited number of customers, ranging from local to overseas customers. The few key customers which the Group is dependent upon are Motorola Inc, Power-One, Kementerian Dalam Negeri and Kernenterian Pertahanan. The contributions of these customers to the proforma revenue ofthe Comcorp Group are as follows: ReVEnue contributions in percentage (%,) of total proforma reveDue of tbe
Comeorp Group for the financial yeaI'” <—ended 31 January—> Customers Country 2002 2003 2004 Motorola Inc USA 68 58 41 Power-One USA 5 1826 Kementerian Dalam Neger;” Malaysia 12 8 20 Kementerian Pertahanan’ Malaysia 3 5 3 Note: • The key customers of the Cominte/ Group are Kementerian Dalom Negeri and Kementerian Periahunan. The Com;nte/ Group is currently the main contributor to the profits ofthe Comcorp Group and is expected to remain so ill the immediate future. Amongst the business risks that the Group faces due to its reliance on a few key customers are the termination of business relationships, cessation of certain product lines by the customers, etc, which may result in the Group losing a substantial portion of its business and in tum, have an adverse effect on the operating and fInancial performance of the Group. As explained in Section 4.3.1 above, the Group has developed long and healthy business relationships with a number ofthese key customers as set out below: Period of relationship (Approximately in years) Kementerian Dalam Negeri 19 Motorola Inc 17 Kementerian Pel1ahanan 16 Power~One 3


The Group has strong working relationships with the above customers who are conunitted to mutual business support, as evidenced by tbe continued bi-Iateral working relationships throughout the years. The Company is of the view that the probability oftennination of business relationships by the Group’s key customers is low due to the Group’s focus on the niche market of defence and public safety conunuDication. The provision of the Group’s ICT services are mainly to Kementerian Dalam Negeri and Kernenterian Pertahanan, both of whom the Comcorp Group via the Comintel Group has served for over 19 years and 16 years respectively. This is made possible with the ability of the Group to understand and cater to the needs of its customers with high technology specifications. In addition, with the Group’s bigh degree of technical understanding of the technology to be used and the ability to structure effective and efficient solutions for its customers, customers are assured of the quality of the Group’s products and services provided. In this regard, the Group also has the flexibility of choosing to work with a number of technology providers, who have long working relationships with the GroUPI to provide its customers with the optimal solution to cater to their needs. In addition, the Group believes that it has established relationships with its customers via its long dealings with them.. The EMS business of the Group is focused on the niche market of high-mix with low-to-moderate volume products. The ability of the Group to operate efficiently in such a niche business as well as the reliance of customers on a limited 11umber of suppliers, such as the Comcorp Group, further contribute to the long-term working relationships between the Comcorp Group and its key customers. The appointment of new vendors would involve high switching costs as well as a long gestation period of acceptance as there are currently no other vendors in Malaysia who are focused on the same industry mix as the Group. This is due to the lengthy period taken to carry out system specification studies, operational and quaLity audits on the products and systems developed by new vendors. In addition, the lead time for any required enhancements or expansions to the products produced or systems developed for the Group’s existing customers is relatively fast as compared to the lead time taken should a new vendor be appointed. Moreover, the Group believes that with its long and established dealings with some of its key customers hereunder and its ability to continue to meet their stringent requirements, its key customers will continue to work with the Group. Consequently, tbe Comcorp Group is confident that it will be able to retain its
existing customer base as well as expand on it in the longer tenn. 4.4 TECHNOLOGICAL OBSOLESCENCE RISK The Comcorp Group is subjected to inherent risks associated with the rapid development of technology. The Group’s products and services are cbaracterised by rapid technological developments, constantly evolving industry standards, swift changes in customer requirements, new product introductions and enhancements. If the Group is unable to offer technologically advanced products, solutions or manufacturing services that are cost-effective to customers, demand for the Group’s services may decline. The Group seeks to minimise these risks by actively and continuously pursuing technological innovation and advancement through R&D, adopting industry best practices and forming strategic business alliances with key technology providers to address the increasingly sophisticated needs of its customers. The Group also provides continuous stafT development to align their skills and knowledge to keep ahreast with the latest technology. Although the Group has put in efforts to mitigate these risks, there is no assurance that the Group will be successful in developing and marketing new products and services or making enhancements to its existing products and services to keep up with the increasingly sophisticated technological requirements of its customers.


4.5 POLITICAL, ECONOMIC AND LEGISLATIVE CONSIDERATIONS As with any other businesses, the performance of the Comcorp Group is susceptible to political, economic and legislative conditions, both locally and internationally. The impact of changes to the general political and economic environment as well as changes to legislative considerations in the domestic as well as international scene may have adverse or unfavourable effects On the Comcorp Group, depending on circumstances. These include, but are nol limited to, the risks of war, terrorism, riots, expropriation, nationalisation, renegotiations or nullification of existing contracts, currency exchange controls, changes in interest rates and methods of taxation. 4.6 AVAILABILITY AND COSTS OF EQUIPMENT, COMPONENTS AND RAW MATERIALS In the provision of ICT services, the Group will be required to purchase components and equipment from its key technology suppliers. Such purchases will be made once the terms of the contract have been detennined vis-a-vis the details of the solutions or services offered by the Group. The Group seeks to fix the price and cost of these purchases at the time the contract is awarded to ensure that fluctuations in costs are minimised. The main materials used in the EMS business of the Group include components such as PCBs, rcs, capacitors and resistors. While the Group is not dependent on any single supplier, any serious and prolonged shortage of such components may lead to loss of business opportunities which may adversely affect the Group’s profits as well as possibly inhibit the expansion of the Group’s business. Further, the cost of raw materials used are dependent on their prevailing demand and supply conditions which are in turn, dependent on the availability of projects. As the Group offers to undertake the purchasing of components used in its customers’ products, resnlting in an unavoidable time lag between the Group’s commitment to its customers on the price for such components and the Group’s subsequent purchase on its customers’ behalf, the Group may be exposed to fluctuations in the cost of the raw materials. The Group seeks to minimise its exposure to shortages of components and price fluctuations through the purchase of such components and raw materials from long·term suppliers recommended by its customers as well as sourcing its supplies from other suppliers on a competitive basis. Generally, the customers of the Group have accommodated price increases with respect to raw materials, equipment and components in the provision ofits EMS business. Notwithstanding the above, there can be no assurance that the Group will be able to continue to minimise its exposure to shortages and cost fluctuations and/or transfer any cost revision of the equipment, components and raw materials used in the provision of its services to its customers and that any unfavourable price fluctuations or shortages may not materially and adversely affect the Group’s perfonnance and operations.
4.7 REGULATORY FRAMEWORK The Comcorp Group’s operations are subject to regulations imposed by several government ministries and agencies, such as PUKONSA for the supply of telecommunication equipment in Sabah, the Ministry of Fiuance for contractor licences, and MITI, MIDA and the Royal Customs and Excise Malaysia for the Group’s manufacturing activities. The Comcorp Group has always worked to ensure that it complies with the rules and regulations of the legal framework in which the Group operates. Notwithstanding the above, no assurance can be given that any changes to the present regulatory framework in which the Group operates will not have any material adverse impact on the Group’s businesses.

4.8 COMPETITION In general, the ICT and EMS industries have relatively low barriers to entry. However, in a more niche market segment involving the provision of systems engineering, integration services and solutions, and the manufacture of high,mix and low-to-moderate volume RF products for the defence and public safety communication sector in which the Group operates, potential entrants are faced with higher barriers to entry as they are required to meet stringent and complex requirements as well as the quality standards set by customers. Notwithstanding the above, the Comcorp Group may face competition from competitors who may expand their business to emulate the same range of products and services, and from new players entering into the same industries as the Group. In the provision of ICT services, the Comcorp Group has enjoyed close working relationships with a number of its major customers, which it had consistently provided quality services and solutions in meeting their requirements. Further, certain of its major customers have been dealing with the Comcorp Group for between sixteen (16) to nineteen (19) years. The Comcorp Group believes that its innovative abilities and strong technical understanding of the technology used, as well as the ability to work with a number of key technology providers, allow it to provide the most effective and optimal solution to its clients. The Comcorp Group also continues to monitor the latest developments in technology as a means to further enhance its provision ofrelated services and solutions. On the other hand, in relation to the EMS business, unlike most of its competitors, the Group has developed itself into a one,stop centre providing a range of services from design to manufacturing. The Group believes that its principal competitive advantages are its integrated synergistic operations, an experienced management team, prompt completion and delivery of customers’ orders, consistent quality, and innovative designs. The EMS business is also able to take advantage of the technology know-how of the ICT business to design and structure tests and analysis for QC as well as to improve on product designs. In addition, the Comcorp Group has, through its subsidiary BCM, established itself as an EMS provider in the industry and has successfully built up a strong foundation and working relationship with its customers. To remain competitive, the Comcorp Group has in place several strategic measures, including carrying out R&D activities to provide new solutions and enhancing existing products as well as introducing cost management measures. It also constantly monitors and assesses the actions ofits competitors and where applicable, takes the necessary steps to address the effects oftheir actions. The Comcorp Group is always looking at ways to constantly improve its production processes in order to increase production efficiency and to ensure the continuous offering ofconsistent quality, promptness in delivery and competitive pricing ofits products and services. Notwithstanding the above, there can be no assurance that the Group will not be affected by the competitive strategies adopted by other players within the same industries in which the Group operates, and that the Group will be able to maintain or expand its existing market share in the future. 4.9 DEPENDENCE ON KEY PERSONNEL The Comcorp Group believes that its continued success will depend, to a significant extent, upon the abilities and continued efforts of its existing Directors and senior management. The loss of any key member of the Board or senior management could adversely affect the Group’s ability to compete effectively in both the ICT and EMS industries. The Directors of the Comcorp Group recognise the importance of the Group’s need to retain skilled personnel and have in place a management succession plan (the details ofwhich are set out in Section 6.4.15 of this Prospectus) to provide incentives for its staff to improve their performance and productivity, and to ensure a smooth transition in the event of any change in staff.
Notwithstanding the above, there can be no assurance tbat the above measures will always be successful in retaining key personnel or in ensuring a smooth transition, should changes occur. 4.10 SHORTAGE OF HUMAN CAPITAL The JCT industry is dependent on a broad range of human capital including hardware specialists, ICT infrastructure specialists, software specialists/programmers, networking specialists and others. Due to the growth in the ICT industry and the broad range of humao capital required, the availability of suitable personnel is crucial to the operations of the players in the industry. Similarly, although the EMS industry is semi-automated, semi-skilled operators are required to operate the production lines. Hence, a stable work force is crucial to ensure that the operations of the EMS providers are not interrupted, particularly in periods of high demand. In this regard, the Group strives to ensure that its staff force is motivated and the staff turnover rate is maintained at a manageable level. The management of the Group also ensures tbat existing management succession plans of the Group are maintaiued. These efforts aim to maintain continuity in management in the long-term and to enSure the operations of the Group are not unnecessarily interrupted. To achieve this, the Group ensures that its remuneration packages are competitive and incentives are provided to its staff force to motivate them. The Group also ensures tbat conscious efforts are made to retain and develop potential management staff. In addition to the above, to ensure tbat the quality of the Group’s services and products are maintained at high levels to meet its customers’ requirements, training and development programmes, both on-the-job and classroom based, are made available to its staff force and are aimed at enhancing technical and managerial skills. Further, to provide flexibility to the Group’s staff utilisation and to mitigate the effects of staff shortages, the Group ensures tbat its staff force is trained to handle various different tasks. This is particularly important for its EMS operations. Notwithstanding the above, despite the above efforts made by the Group, there is no assurance tbat the Group will avoid situations of shortages in staff force which may affect its operations and performance.
4.11 EXCHANGE RATE RISK The transactions of the Comcorp Group are mainly denominated in RM and usn. For the financial year ended 30 September 2003, approximately 82% of the revenue derived from its EMS business were billed in usn, whilst approximately 80% of its purchases of raw materials and components were denominated in usn. The remaining balance of the revenue and purchases of the Group’s EMS business were mainly denominated in RM, On the other hand, for the financial year ended 31 January 2004, the contracts of the ICT business of the Comintel Group were mainly billed in RM, whilst approximately 50% to 60% of contract costs relating to the purchase of equipment and components were transacted in USD, with the balance mainly transacted in RM. At present, the Comcorp Group does not hedge its foreign denominated transactions, as a significant portion of its EMS business is naturally hedged. In addition, the current pegging of the RM against the USD, to a certain extent, eliminates the risk of the foreign exchange fluClUations betweeo the USD and RM, For the same reason, the Group does not hedge its exposure to foreign denominated transactions of the JCT business. Notwithstanding the above, the management will hedge against any foreign exchange exposure which may arise, if deemed necessary. 4_ RISK FACTORS (CONT’D) Although the Group is ofthe view that its exposure to foreign exchange fluctuations is largely mitigated., there can be no assurance that the Group will not be exposed to any foreign exchange fluctuations arising from its future transactions due to the upliftment or adjustments to the RM-USD peg or the change in the terms or denomination ofits future contracts,
4.12 OPERATIONAL RISKS The Group faces certain operational risks, including but not limited to flIe outbreaks and disruptions to electricity supply, which would affect its business operations, To mitigate the risks of fire outbreaks, tbe Group has taken precautionary steps through the installation of fire resistant walls, fife hydrants, fire extinguishers and sprinkler systems at its office and factory premises. A safety committee which comprises senior management and operational staff of the Group, is entrusted with the duty of evaluating and performing safety and security checks on the factory as well as to ensure that the security policies and control systems are strictly adhered to at all times. Factory employees are also trained on the use of fire fighting equipment as well as basic fire fighting techniques, fire drills are conducted at regular intervals to ensure that employees are well prepared in the event a fire outbreak occurs. In addition, the Group’s production process undertaken by BCM is highly automated and is therefore dependent on a consistent supply ofelectricity for its smooth operations, The power supply to BCM’s factory premises is provided by Tenaga Nasional Berhad (“TNB”) and an independent power producer (“IPP”) namely Northern Utility Resources Sdn Bhd, As such, in the event of a disruption to the power supply from either TNB or the IPP, the necessary backup power supply will be provided by the other,
However, no assurance can be given that, even with the existing risk management plan in place, the business operations of the Group wiII not be affected in the event such operational risk factors do occur.

4.13 CONTROL BY SUBSTANTIAL SHAREHOLDERS Upon the Listing, the substantial shareholders of Comcorp, namely JTSB, Sagittarius, AMG, Leng Keng Hok @ Lim Keng Hock, Dato’ Seri Ahmad Ramli hin Haji Mohd Nor, Mohamadon bin Abdullah and Lee Chonn Bin will collectively own, directly and indirectly, approximately 67% of the Company’s enlarged issued and paid-up share capital. As a result, they, if acting jointly, are likely to be able to influence the outcome of certain mailers requiring the vote of the Company’s shareholders, unless they are required to abstain from voting by law and/or the relevant authorities. In addition, the management of the Comcorp Group will be under the direction of Leng Keng Hok @ Lim Keng Hock, the Managing Director of Comcorp; Lee Choon Bin, the Executive Director of Comcorp; Mohamadon bin Abdullah, the Non-Executive Director of Comcorp; and Dato’ Seri Ahmad Ramli bin Haji MoM Nor, the Non-Executive Deputy Chairman of Comcorp, Further, Leng Keng Hok @ Lim Keng Hock and Lee Choon Bin are husband and


wife. Notwithstanding the above, the structure of the Group is such that members of the Board and management have their own independent functions but overall decisions are made on a coUective basis. There are also control procedures in place to ensure business decisions and outcomes are made on a rational and independent basis and not through undue influence. Such procedures include, amongst others, the requirement for the Independent Directors and the Audit Committee, formed in accordance with the provisions of the Listing Requirements of Bursa Securities, to ensure transactions involving parties related to the Group are entered into on commercially acceptable terms that are fair to the Group, Further, where a situation of conflict of interest is present, the affected party shall abstain from voting on the subject matter. 4. RISK FACTORS (CONT’D)
4.14 PROFIT FORECAST Tbe profit forecast set out in Sections 11.3 and 11.4 of tbis Prospectus has been prepared based on assumptions whicb the Directors of Comcorp believe to be reasonable. However, these assumptions are subject to uncertainties and contingencies. Due to the inherent uncertainties underlying the profit forecast and given that events and circumstances do not occur as expected, there can be no assurance that the profit forecast contained herein will be acbieved and actual results may be materially different from the forecast. Investors are deemed to have read and understood the assumptions and uncertainties underlying the profit forecast contained herein.
4.15 BORROWINGS As at 25 June 2004, the Group’s total long-term and short-term borrowings amounted to RM15.085 million and RM65.466 million respectively, of which RM73.736 million is subject to variable interest rates. As sucb, any increase in interest rates will increase the burden of the Group with respect to interest payments on the loans depending on the total outstanding loans as at that point in time. Further details of the Group’s total borrowings as at25 June 2004 are set out in Section 11.2.2. The Group plans to utilise RM8.0 million of the proceeds raised from the Public Issue towards the repayment of part of its borrowings, and this is expected to contribute to the reduction in the interest expense of the Group. Notwithstanding the above, there can be no assurance that the performance of the Group will remain favourable in the event of adverse changes in interest rates.
4.16 INSURANCE COVERAGE The management of the Group is aware of the adverse consequences arising from inadequate insurance coverage that could affect the Group’s business operations. In ensuring that such risks are kept to a minimum, the management of the Group reviews and endeavours to obtain adequate insurance coverage for its assets on a continuous basis. Further details of the Group’s insurance policies are set out in Section 16.9(xxii) of this Prospectus. However, there can be no assurance that the insurance coverage would be comprehensive and adequate and would reflect the replacement cost of the assets or any consequential loss arising therefrom. Such an inadequacy may adversely affect the financial performance and position, and business prospects of the Group. 4.17 FAlLUREIDELAY IN THE LISTING EXERCISE The listing exercise is also exposed to the risk that it may fail or be delayed should the following events occur: (i) the identified investors fail to subscribe to the portion of the Public Issue Shares and/or Offer Shares allocated to them pursuant to Sections 3.5.I(ii) and 3.5.2 of this Prospectus respectively; (ii) the Underwriters exercising their rights to terminate the underwriting arrangement pursuant to the terms of the underwriting agreement, thereby discharging themselves from their obligations thereunder. The salient terms of the underwriting agreement are set out in Section 3.10 of this Prospectus; (iii) the Company and/or the Underwriters fail to honour their obligations under the


underwriting agreement; or (iv) the Company is unable to meet the public spread requirement i.e. at least 25% oflhe issued and paid-up share capital of the Company must be held by a minimum number of 1,000 public shareholders holding not less than 100 shares each upon the completion of the IPO and a1 the point of listing.

4. RISK FACTORS (CONT’D) Although the Directors of Comcorp and the Offeror will endeavour to ensure compliance by Comcorp of the listing requirements by the various authorities, no assurance can be given that the abovementioned factors will not cause a delay in or failure of the listing exercise. In the event of failure of the listing exercise, any proceeds so received for the application of the Comcorp Shares shall be refunded to the applicants without interest at their own risk. 4.18 FORWARD-LOOKING STATEMENTS Certain statements in this Prospectus are based on historical data which may not be reflective of future results, and others are forward-looking in nature which are subject 10 uncertainties
and contingencies. All forward-looking statements are based on estimates and assumptions made by the Directors of the Company, and although believed to be reasonable by the Directors, are subject to lmown and unknown risks, uncertainties and other factors which may cause the actnal results, performance or achievements to differ materially from future results, performance or achievements expressed or implied in such forward-looking statements. Such factors include, inter-alia, general economic and business conditions, competition, the impact of new laws and regulations affecting the Group and the industries in which the Group operates and changes in interest rates and foreign exchange rates. In light of the above factors and other uncertainties, there is no assurance that forward-looking statements in this Prospectus will eventually materialise in the mauner which such statements may have been expressed or implied. [The rest of this page is intentionally left blankl


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