Business Overview

5. INFORMAnON ON OUR GROUP 5. INFORMAnON ON OUR GROUP OUR HISTORY Our Company was incorporated in Malaysia under the Act on 17 June 2013 as a public limited company. Prior to our IPO, we undertook the Acquisitions in September 2014 and June 2015. The Acquisitions are described in Section 5.4. Our corporate structure is as follows: Dancomech  55%  Optimis(1)
~ 100% ~ 100% Dancomech Dancomech JB Engineering Note:  (1)  The remaining 45% of the entire issued and paid-up share capital of Optimis is held by Chang Soo Hong. Chang Soo Hong is a director and chief executive officer of Optimis as well as one of our key management personnel. Further details on Chang Soo Hong are set out in Section 8.4.
Company  Principal Activities  Dancomech Dancomech Engineering Optimis Dancomech JB  Investment holding Trading and distribution of third pmty brands and own brands of PCE and Measurement Instruments as well as third party brands of MPTE. Provision of after-sales services Trading and distribution of third pmty brands and own brands of PCE and Measurement Instruments to the water and sewerage industry Trading and distribution of third party brands and own brands of PCE and Measurement Instruments in Gelang Patah, Tanjung Bin, Pasir Gudang, Tanjung Langsat, Pengerang, Nusa Jaya and BandaI’ Seri Iskandar in Johor Daml Takzim, Malaysia. Provision of after-sales services to our customers in Johor
We are primarily involved in the trading and distribution of PCE and Measurement Instruments. Our focus area is mainly in the palm oil and oleochemicals, oil and gas and petrochemical and water treatment and sewerage industries. In 2015, we have expanded our product range with the supply of MPTE, in pmticular Pumps, to the palm oil and oleochemicals industry subsequent to the acquisition of distribution right from KSB Malaysia Pumps & Valves Sdn Bhd on 21 October 2015. Our business was co-founded by Aik Swee Tong (our Managing Director) together with his sister, Aik Hui Luan (our Chief Operating Officer) and her husband, Wong Chiau Siew (our Senior Sales Manager), all of whom have contributed significantly to the development, growth and success of our Group. Aik Swee Tong has been instrumental in developing the strategic direction of our Group bringing with him approximately 30 years of experience in the abovementioned industries in Malaysia. [The rest of this page has been intentionally left blank] 5. INFORMATION ON OUR GROUP (Cont’dj Our history can be traced back to August 1989 with the establishment of DET, a sole proprietorship under the name of Aik Swee Tong. DET’s business activities were mainly in the trading of PCE and Measurement Instruments to end users in the Malaysian palm oil and oleochemicals industry. We initially sourced our supplies from local importers. As our sales volume gradually increased over the years, in 1992 we began sourcing our products directly from foreign manufacturers in Taiwan, Japan, People’s Republic of China, United Kingdom, United States and Germany. DET’s business operations were carried out from a rented office premises in Jalan Kuchai Lama, Kuala Lumpur. In 1993, Dancomech (M) Sdn Bhd was incorporated to take over the existing business of DET, with Aik Swee Tong, Aik Cwo Shing, Wong Chiau Siew, Aik Hui Luan, Aik Ai Kok, Aik Seng Kah and Lim Cheng Huat as the shareholders. Dancomech (M) Sdn Bhd’s business activity remained the same as DET. Dancomech (M) Sdn Bhd operated its business in a warehouse cum office premises in Medan Maju Jaya, Petaling Jaya in 1993. DET ceased operations in the same year. In 1999, Aik Cwo Shing and Dancomech (M) Sdn Bhd incorporated Dancord Engineering Sdn Bhd with a 70% and 30% equity interest respectively to supply PCE and Measurement Instruments mainly to the oleochemicals industry, palm oil refineries and EPCC Contractors. Dancord Engineering Sdn Bhd operated its business in Subang Jaya. In 2000, Dancomech Engineering was established to take over the existing businesses of Dancomech (M) Sdn Bhd and Dancord Engineering Sdn Bhd with Aik Swee Tong, Aik Cwo Shing, Wong Chiau Siew, Aik Hui Luan, Aik Ai Kok, Aik Seng Kah, Lim Cheng Huat, Aik Kwo Liang and Chan Chop Tong @ Aik Chop Tong as shareholders. In 2005, Lim Cheng Huat transferred his shareholding in Dancomech Engineering to Aik Hui Chyn, his spouse, who is the sister of Aik Swee Tong, Aik Cwo Shing, Aik Hui Luan, Aik Ai Kok, Aik Seng Kah, Aik Kwo Liang and Chan Chop Tong@AikChop Tong. In 2008, Aik Cwo Shing and Chang Soo Hong incorporated Optimis with 50% (1 share) and 50% (1 share) equity interests respectively to supply PCE and Measurement Instruments to the water treatment and sewerage industry. In 2009, Aik Cwo Shing transferred his 1 share to Dancovest and Optimis increased its issued and paid-up share capital to 200,000 ordinary shares of RMl.OO each, resulting in Dancovest (50%), Chang Soo Hong (40%) and Eastech Systems Sdn Bhd (10%) as the shareholders. In 2010, Eastech Systems Sdn Bhd sold its shares to Dancovest and Chang Soo Hong in equal proportions, resulting in Dancovest and Chang Soo Hong holding a 55% and 45% equity interest respectively. In March 2013, ABC Equity became a shareholder of Dancomech Engineering, having subscribed for 4,999,998 ordinary shares of RMl.OO each. In March 2014, Dancomech Engineering further issued 3,300,000 shares of RMl.OO each to the Promoters, save and except for ABC Equity. Subsequently in April 2014, ABC Equity acquired 2 ordinmy shares ofRMl.OO each in Dancomech Engineering, which resulted in an increase of ABC’s Equity shareholdings to 5,000,000 ordinmy shares ofRMl.OO each. In May 2013, Dancomech Engineering and Koo Chai Chin incorporated Dancomech JB with a 70% and 30% equity interest respectively to expand our presence in Gelang Patah, Tanjung Bin, Pasir Gudang, Tanjung Langsat, Pengerang, Nusa Jaya and BandaI’ Seri Iskandar in Johor Darul Takzim, Malaysia. In September 2014 and June 2015, we undertook the Acquisitions which resulted in Dancomech Engineering, Optimis and Dancomech JB being our subsidiaries. The details of the Acquisitions are as described in Section 5.4. As explained in Section 5.4, Dancomech JB was acquired in two separate transactions ie. acquisition of 70% equity interest in September 2014 and the remaining 30% in June 2015. Prior to the acquisition of the remaining 30% equity interest in Dancomech JB, Dancomech JB operated from a rented premises in Johor Bahru. Upon completion of the acquisition of the remaining 30% equity interest in Dancomech JB and the termination of the tenancy relating to the Dancomech JB’s operating premises in Johor Bahru, Dancomech JB operates from our headquarters at Jalan Pelukis. 56 5. INFORMATION ON OUR GROUP (Conf’dj Growth and Expansion In 1992, DET secured its first major purchase order worth approximately RM600,000 for supply of PCE to Genting Sanyen Paperboard Sdn Bhd. Dancomech Engineering’s first overseas purchase order was to supply to PT Super Andalas Steel based in Indonesia in the palm oil industry. The purchase order was worth approximately RM300,000. In May 2007, Dancomech Engineering introduced its own brand WAGI to its product portfolio, which mainly calTies Valves and thereafter VMX in June 2008. In June 2009, Dancomech Engineering introduced Omaval to its product portfolio, which mainly calTies PCE products. In 2012, Dancomech Engineering secured its first purchase order valued above RMIO.O million to supply Valves to a customer involved in a large scale project related to the oil and gas industry. In 2015, Dancomech Engineering expanded its range of products to include distribution of MPTE products in particular Pumps. Over the years, we have been appointed by various suppliers to distribute their products. The diversity in our product range also provides us with considerable synergies for cross-selling as we will be able to provide our existing and new customers with a range of trading products. Currently, we have been granted seven (7) exclusive or sole distributorship rights and eleven (11) distributorship rights by our suppliers. The details of our principals and the distribution rights are set out in Section 6.12. As at LPD, we calTY a total of twelve (12) product categories as part of our PCE inventory and five (5) product categories as part of our Measurement Instruments inventory. The details of the product categories are set out in Section 6.1.1(c). Our key achievements and milestones since inception are described in detail under Section 5.7. Premises and Landed Properties In 2000, when Dancomech Engineering was established, its business operations were based at No. 12, Jalan Pengacara Ul/48, Glenmarie, Shah Alam. The Jalan Pengacara property was owned by Dancomech (M) Sdn Bhd. In 2002, Dancomech Engineering acquired a semi-detached light industrial factory at No. I, Jalan KaI1unis Ul/47, Temasya Industrial Park, Shah Alam from Temasya Development Co Sdn Bhd for RM2.59 million, which was rented out. Dancomech Engineering has also acquired No. 21, Jalan Pemberita Ul/49, Glenmarie, Shah Alam from Looi Yow Beng for RM4.17 million in May 2004. They later shifted their business operations to the Jalan Pemberita prope11y in 2005 and used it as warehouse­cum-office. In August 2010, Dancomech Engineering acquired a freehold industrial land bearing the address of Lot 19, Jalan Pelukis Ul/46, Seksyen UI, Temasya Industrial Park, Shah Alam from Temasya Development Co Sdn Bhd for RMI1.53 million and thereafter in June 2012 commenced construction of our new headquaI1ers on the property. In December 2010, Dancomech Engineering sold a semi­detached factory at No. 22, Jalan Pendaftar Ul/54, Temasya Industrial Park, Shah Alam for RM6.00 million to Dancovest (M) Sdn Bhd on a willing buyer willing seller basis. The JaIan Pendaftar propeliy was acquired by Dancomech Engineering in October 2007 from Temasya Development Co Ltd for RM5 .12 million. [The rest of this page has been intentionally left blank] 5. INFORMATION ON OUR GROUP (Cont’dj In FYE 2013, Dancomech Engineering declared a dividend of RM15.84 million to all of its shareholders. ABC Equity (a shareholder of Dancomech Engineering at the relevant time) was entitled to a dividend payment of RM 14.40 million. Prior to the declaration of the said dividend, Dancomech Engineering has acquired a new operation office at lalan Pelukis with the intention of relocating its business operations there (as explained in the paragraph above). Upon relocation of the business operations of Dancomech Engineering to the newly acquired property at lalan Pelukis (the relocation was completed in May 2014) the properties located at lalan Kartunis and lalan Pemberita were no longer utilised by Dancomech Engineering for its business operations. Therefore, in April 2013, both the properties in lalan Kartunis and lalan Pemberita were transferred by Dancomech Engineering to ABC Equity by way of set-off against dividend payments (based on their respective market values of RM5.90 million and RM8.50 million as appraised by an independent registered valuer) as such arrangement would enable Dancomech Engineering to: (a) dispose off its unutilised properties; and
(b) maintain a larger cash balance.

The lalan Pemberita property was subsequently rented by Dancomech Engineering from ABC Equity pending completion of the construction of our new headquarters at lalan Pelukis, at a monthly rental of RM27,000 during the period from April 2013 to April 2014. In May 2014, construction of our new headquarters at the lalan Pelukis property was completed and we have since shifted our business operations there. For our key achievements and milestones, please refer to Section 5.7. [The rest of this page has been intentionally left blank] 5. INFORMAnON ON OUR GROUP (Conl’d)
5.2 SHARE CAPITAL Our present authorised share capital is RM100,000,000 comprising 250,000,000 ordinary shares of RMOAO each, of which RM50,000,000 comprising 125,000,000 ordinary shares of RMOAO each are issued and credited as fully paid-up. Upon completion of our IPO, our issued and paid-up share capital will increase to RM59,600,000 comprising 149,000,000 Shares. The changes in our issued and paid-up share capital since our incorporation are as follows: Date of allotment 17.06.2013 23.09.2014  No. of Shares allotted Par Value RM 250 Pre-Consolidation Shares 249,999,750 Pre­Consolidation Shares 0.20 0.20  Consideration Cumulative Total RM Cash 50 Issued as consideration 50,000,000 for the acquisition of Dancomech Engineering
Note: (I) Consolidation ofevety two (2) existing ordinary shares ofRMO.20 each in Dancomech into one (1) ordinmy share ofRM0.40 each which was completed on 13 August 2015. There are no discounts, special terms or instalment payment terms applicable to the payment of consideration for the above allotments. As at LPD, neither us nor our subsidiaries have any outstanding warrants, options, convertible securities or uncalled capital. SUBSIDIARIES 5.3.1 Dancomech Engineering (524484-V) (i) History and Business
Dancomech Engineering was incorporated on 24 August 2000 in Malaysia under the Act as a private limited company and commenced operations in the same year. It is principally involved in the trading and distribution ofPCE and Measurement Instruments.
(ii) Share Capital

Dancomech Engineering’s present authorised share capital is RM10,000,000 compnsmg 10,000,000 ordinary shares of RM 1.00 each, of which RM8,800,000 comprising 8,800,000 ordinary shares ofRMl.OO each have been issued and fully paid-up. [The rest of this page has been intentionally left blank] 5. INFORMATION ON OUR GROUP (Cont’dj (iii) (iv) 5.3.2 (i)
(ii)

The changes in the issued and paid-up share capital of Dancomech Engineering since its incorporation are as follows: Date of  No. of ordinary  Par Value  Consideration  Cumulative Total  allotment  shares allotted  RM  RM  24.08.2000  5  1.00  Cash  5  09.07.2001  499,995  1.00  Cash  500,000  29.03.2013  5,000,000  1.00  Cash  5,500,000  18.03.2014  3,300,000  1.00  Cash  8,800,000
There are no discounts, special terms or instalment payment terms applicable to the payment of consideration for the above allotments. As at LPD, there are no outstanding wan-ants, options, conveltible securities or uncalled capital in Dancomech Engineering. Shareholders and Directors Dancomech Engineering is our wholly-owned subsidiary company and its directors are Aik Swee Tong, Aik Cwo Shing, Aik Kwo Liang, Aik Hui Luan and Wong Chiau Siew. Subsidiary and Associated Companies Dancomech Engineering does not have any subsidiary or associated company.
Optimis (831446-A) History and Business Optimis was incorporated on 3 September 2008 in Malaysia under the Act as a private limited company and commenced operations in the same year. It is principally involved in the trading and distribution of PCE and Measurement Instruments to the water industry. Share Capital Optimis’ present authorised share capital is RM500,000 comprising 500,000 ordinary shares of RM1.00 each, of which RM200,000 comprising 200,000 ordinary shares of RM1.00 each have been issued and fully paid-up. The changes in the issued and paid-up share capital of Optimis since its incorporation are as follows:  Date of allotment 03.09.2008 18.05.2009  No. of ordinary shares allotted 2 199,998  Par Value RM 1.00 1.00  Consideration Cash Cash  Cumulative Total RM 2 200,000
There are no discounts, special terms or instalment payment tenus applicable to the payment of consideration for the above allotments. As at LPD, there are no outstanding walTants, options, conveltible securities or uncalled capital in Optimis.
[The rest of this page has been intentionally left blank] 5. INFORMATION ON OUR GROUP (Conf’d) (iii) (iv)
(i)
(ii)

5.3.3 (iii) (iv) Shareholders and Directors Optimis is a 55% owned subsidiary company of Dancomech whilst Chang Soo Hong owns 45% shareholding in Optimis. The directors are Aik Cwo Shing and Chang Soo Hong. Subsidiary and Associated Companies Optimis does not have any subsidiary or associated company. Dancomech JB (1047387-D) History and Business Dancomech JB was incorporated on 23 May 2013 in Malaysia under the Act as a private limited company and commenced operations in the same year. It is principally involved in the trading and distribution of PCE and Measurement Instruments in Gelang Patah, Tanjung Bin, Pasir Gudang, Tanjung Langsat, Pengerang, Nusa Jaya and Bandar Seri Iskandar in Johor Darul Takzim, Malaysia. Share Capital Dancomech JB’s present authorised share capital is RM400,000 comprising 400,000 ordinary shares of RM 1.00 each, of which RM300,000 comprising 300,000 ordinary shares of RM 1.00 each have been issued and fully paid-up. The changes in the issued and paid-up share capital of Dancomech JB since its incorporation are as follows:  Date of allotment 23.05.2013 01.l1.20 13  No. of ordinary shares allotted 2 299,998  Par Value RM 1.00 1.00  Consideration Cash Cash  Cumulative Total RM 2 300,000
There are no discounts, special terms or instalment payment terms applicable to the payment of consideration for the above allotments. As at LPD, there are no outstanding waITants, options, convertible securities or uncalled capital in Dancomech .lB. Shareholders and Directors Dancomech JB is our wholly-owned subsidiary company and its directors are Aik Swee Tong and Aik Cwo Shing. Subsidiary and Associated Companies Dancomech JB does not have any subsidiary or associated company.
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5. INFORMATION ON OUR GROUP (Cont’d) ACQUISITIONS Acquisition of Dancomech Engineering Dancomech acquired the entire equity interest in Dancomech Engineering compnsmg 8,800,000 ordinary shares of RM1.00 each for a total purchase consideration of RM49,999,950 satisfied entirely by the issuance of 249,999,750 Pre-Consolidation Shares, at an issue price of RMO.20 per Pre­Consolidation Share. Pursuant to the share sale agreement dated 11 September 2014 (“Dancomech Engineering Share Sale Agreement”), Dancomech acquired the entire equity interest in Dancomech Engineering from the shareholders of Dancomech Engineering as follows: Shareholder  Number of  % of Issued  Purchase  No. of Pre- ordinary shares  and paid-up  consideration  Consolidation  acquired  share capital  RM  Shares issued  ABC Equity  5,000,000  56.82  28,409,062.20  142,045,311  Aik Swee Tong  798,000  9.07  4,534,086.40  22,670,432  Aik Cwo Shing  798,000  9.07  4,534,086.40  22,670,432  Aik Kwo Liang  494,000  5.61  2,806,815.40  14,034,077  Wong Chiau Siew  456,000  5.18  2,590,906.60  12,954,533  Aik Hui Luan  380,000  4.32  2,159,088.80  10,795,444  AikAi Kok  304,000  3.45  1,727,271.00  8,636,355  Aik SengKah  266,000  3.02  1,511,362.20  7,556,811  AikHui Chyn  190,000  2.16  1,079,544.40  5,397,722  Chan  Chop  Tong  @  114,000  1.30  647,726.60  3,238,633  Aik Chop Tong  8,800,000(1)  100.00  49,999,950.00  249,999,750
Note: (1) The issued and paid-up capital ofDancomech Engineering after the Acquisitions. The purchase consideration ofRM49,999,950 was arrived at on a willing buyer-willing seller basis and based on the adjusted pro forma NA of Dancomech Engineering as at 31 December 2013 after taking into account the effects ofthe Acquisitions as follows:  RM  Audited NA of Dancomech Engineering as at 31 December 2013  49,937,731  Add: Increase in share capital  3,300,000  Less: Dividend payment to existing shareholders after 31 December 2013  (3,237,781)  Adjusted pro forma NA of Dancomech Engineering  49,999,950
The acquisition was duly completed in accordance with the terms of the Dancomech Engineering Share Sale Agreement.
[The rest of this page has been intentionally left blank) 5. INFORMATION ON OUR GROUP (COllt’d) Acquisition of Optimis Dancomech acquired 55% of the equity interest in Optimis compnsmg 110,000 ordinary shares of RMl.OO each for a total purchase consideration ofRM387,191 satisfied entirely by cash. Pursuant to the share sale agreement dated II September 2014 (“Optimis Share Sale Agreement”), Dancomech acquired 55% of the equity interest in Optimis from the shareholder ofOptimis as follows: Shareholder  Number of ordinary shares acquired  % of Issued and paid-up share capital  Purchase consideration RM  Dancovest  110,000  55  387,191  110,000  55  387,191
The purchase consideration ofRM387,191 was arrived at on a willing buyer willing seller basis and represents 55% of the audited NA of Optimis as at 31 December 2013 of RM703,984. The acquisition was duly completed in accordance with the terms ofthe Optimis Share Sale Agreement. Acquisition of Dancomech JB Dancomech acquired the entire equity interest in Dancomech 18 comprising 300,000 ordinary shares of RMl.OO each for a total purchase consideration of RM256,715 satisfied entirely by cash. This acquisition involved two (2) separate transactions pursuant to the share sale agreements dated 11 September 2014 (relating to the acquisition 000% of the entire issued share capital of Dancomech 18) (“Dancomech JB Share Sale Agreement-I”) and 30 June 2015 (relating to the acquisition of30% of the entire issued share capital of Dancomech JB) (“Dancomech JB Share Sale Agreement-2”), respectively. Dancomech acquired the entire equity interest in Dancomech JB from the shareholders of Dancomech JB as follows: Shareholder  Number of ordinary shares aCQuircd  % of Issued and paid-up share cllPitll1  Purchase consideration RM  Dancomech Engineering Koo Chai Chin  210,000(1) 90,000(2)  70.00 30.00  166,715(3) 90,000(4}  300,000  100.00  256,715
Notes: (I) Acquisition of 70% of the entire issued share capital ofDancomech JB pursuant to the Dancomech JB Share Sale Agreement-I.
(2) Acquisition of 30% ofthe entire issued share capital ofDancomech JB pursuant to the Dancomech JB Share Sale Agreement-2.
(3) The purchase consideration of RMI66,7I5 was arrived at on a willing buyer-willing seller basis and represents 70.00% of the audited NA ofDancomech JB as at 31 December 2013 ofRM238.I64. The acquisition was duly completed in accordance with the Dancomech JB Share Sale Agreement-I.
5. INFORMATION ON OUR GROUP (Cont’d)
(4) The purchase consideration of RM90,OOO was arrived at on a willing buyer willing seller basis and represents the initial capital injection by Koo Chai Chin. The acquisition was duly completed in accordance with the Dancomech JB Share Sale Agreement-2.

The Acquisitions were undertaken to consolidate the business of the Group and to facilitate the Listing. 5.5 IPO We are undertaking the IPO, the details of which are set out in Section 3.1.

 

5.6 LISTING ON BURSA SECURITIES Upon completion of IPO, we will seek the admission and the listing of and quotation for our entire enlarged issued and paid-up share capital of RM59,600,000 comprising 149,000,000 Shares on the Main Market of Bursa Securities. 5.7 KEY ACHIEVEMENTS AND MILESTONES Our key achievements and milestones since inception are as follows: Year  Key Achievements And Milestones  1989  Started DET which operated from a rented premises at Jalan Kuchai Lama, Kuala Lumpur  1992  • DET began sourcing directly from foreign manufacturers from Taiwan, Japan, People’s Republic of China, United Kingdom, United States and Germany. DET secured first major purchase order worth approximately RM600,000 for supply of PCE to Genting Sanyen Paperboard Sdn Bhd  1993  • Dancomech (M) Sdn Bhd was incorporated to replace DET • Dancomech (M) Sdn Bhd moved to Medan Maju Jaya, Petaling Jaya premises  1995  Dant:ornet:h (M) Suu Bhu is appointed as an approved vendor to supply British Rototherm Co. Ltd equipment pressure and temperature recorders to approximately sixty (60) of FELDA’s palm oil mills  1997  • Dancomech (M) Sdn Bhd is appointed as a sole agent for Malaysia by Ayvaz Ltd. tI-om Turkey to supply steam traps and expansion joints • Dancomech (M) Sdn Bhd is appointed as a sole agent for Malaysia by Korea Steel Power Corporation from Korea to supply tank protection venting devices for the oil and gas industry in Malaysia  2000  • Dancomech Engineering was incorporated • Dancomech Engineering moved to Temasya Industrial Park, Shah Alam premises at Jalan Pengacara premises • For Dancomech Engineering’s first overseas purchase order, they supplied to PT Super Andalas Steel based in Indonesia in the palm oil industry. The purchase order was worth approximately RM300,000
5. INFORMAnON ON OUR GROUP (Cont’d) Year 2001 2005 2007 2008 2009 2010  Key Achievements And Milestones Dancomech Engineering IS appointed as an authorised distributor for Malaysia by Neway Valve (Suzhou) Co. Ltd. from the People’s Republic of China to supply butterfly valves, gate valves, check valves, globe valves and ball valves under the Neway brand Since the setting up of Neway Valve (Suzhou) Co. Ltd.’s regional sales office, Neway Valve (Singapore) Pte. Ltd. in 2013 which is based in Singapore and covers the region of South-East Asia (including Australia, New Zealand and India), Dancomech’s latest renewed appointment as an authorised distributor of the said valves IS granted by Neway Valve (Singapore) Pte. Ltd.. The tenure of the appointment is until 31 December 2017. Dancomech Engineering is also currently authorised by Neway Valve (Singapore) Pte. Ltd. to supply butterfly valves, gate valves, check valves, globe valves and ball valves under the Neway brand to a specific entity in Sumatera, Indonesia until 31 December 2017 • Dancomech Engineering moved from Jalan Pengacara to Jalan Pemberita premises at Temasya Industrial Park, Shah Alam • Dancomech Engineering is appointed as an agent for Malaysia by Power­Genex Ltd. from South Korea to supply positioners and switches. The current appointment of Dancomech Engineering is as sales and service distributor and the tenure of the appointment is until 21 August 2016 • Dancomech Engineering introduced its own brand WAGI to its product portfolio, which carries PCE, mainly Valves • Dancomech Engineering is appointed as an exclusive representative in Malaysia by Korea Steel Power Corporation (representative of Tanktech Co. Ltd.) from South Korea to supply tank protection venting devices. The tenure of the appointment was until 2 January 2009 but the appointment shall be automatically renewed for period of 2 years each unless either party decides to terminate the appointment by giving 60 days’ written notice. The appointment is currently subsisting • Dancomech Engineering secured a purchase order worth approximately RM2.50 million from KNM Process Systems Sdn Bhd to supply Valves to Mission II Gebeng Biogas located in Pahang • Dancomech Engineering secured a purchase order worth approximately RMl.OO million from PT Wilmar Nabati to supply Valves for the palm oil industry • Optimis was incorporated • Dancomech Engineering introduced its own brand VMX to its product portfolio, which mainly carries Valves • Dancomech Engineering is appointed as authorised distributor in Malaysia by British Rototherm Co. Ltd from the United Kingdom • Dancomech Engineering introduced its own brand Omaval to its product portfolio, which mainly carries PCE Dancomech Engineering sold its property in Jalan Pendaftar and acquired a property in Jalan Pelukis at Temasya Industrial Park, Shah Alam to construct new headquarters
5. INFORMATION ON OUR GROUP (Cont’d) Year 2011  Key Achievements And Milestones Dancomech Engineering obtained the Top Seller Award for South East Asia region and the Second Top Seller Award for Asia (including the People’s Republic of China) from Leser GmbH & Co. KG (“Leser”) for its achievements in Leser’s sales targets. Leser is the largest manufacturer of safety Valves in Europe and a leader in its market worldwide  2012  Dancomech Engineering secured an order worth approximately RM14.70 million to supply Valves to a customer involved in a large scale project related to the oil and gas industry  2013  • Dancomech was incorporated • Dancomech Engineering transferred its properties in Jalan Kartunis and Jalan Pemberita to ABC Equity by way of set-off against dividend payments • Dancomech JB became a subsidiary of Dancomech Engineering  2014  • Dancomech Engineering and Optimis moved their business operations to newly constructed headquarters at Jalan Pelukis at Temasya Industrial Park, Shah Alam • The Acquisitions were undertaken by Dancomech • Dancomech Engineering, Optimis and Dancomech JB became subsidiaries of Dancomech  2015  • Dancomech acquired the remaining 30% equity interest in Dancomech JB • Dancomech Engineering is appointed as an exclusive agent/distributor for Peninsular Malaysia by KSB Malaysia Pumps & Valves Sdn Bhd to supply Pumps under the KSB brand. The tenure ofthe appointment is for 2 years from 21 October 2015 until 20 October 2017
[The rest of this page has been intentionally left blank] 6. BUSINESS OVERVIEW 6.1  OUR PRINCIPAL BUSINESS ACTIVITIES  6.1.1  OUf Business Model  Our Group’s business model is summarised as below:
Business Focus
Trading and distribution of third party brands and own brands ofPCE and Measurement Instruments Suppliers(l) Distribution Network And Customer Base Third party suppliers OEM]( Supply of third party brands of PCE and Measurement Instruments  ..J /l  Our Group  ]<  Direct/Indirect DistributiOlP) \ V  DirectlIndirect Distribution(2) \V
Traders and Distributors
EPCC Contractors / Engineering Consultants / OEM / Hardware Retailers / Equipment Manufacturers
~
Supply of own brands ofPCE and Measurement Instruments Direct Distribution(2) \/ End Users / Customers / Project Owners in Main User Industries Revenue Contribution by Customers Revenue Contributiou by Industries (FVE 2015) (FYE 2015)
Diverse Product Range
Value-Added Services
/”r “\ Authorised Distributors and  Experienced  Possession of Own Brands  Management Team
Extensive Customer Base  Proven Track  Record
” Long-standing RelationshipsCompetitive with our Major Advantages Suppliers \. ..4 ‘­Notes: (I) In practice, warranty claims made by Dancomech ‘.I’ customers against manufacturing defects wi11 be reimbursed by Dancomech ‘.I’ suppliers and OEM Further details regarding warranties are set out in Section 6.2(b).
(2) Direct distribution refers to products purchased from Dancomech for customers’ own consumption. Indirect distribution refers to the customers acting as intermediaries who supply the products purchasedfiwn Dancomech to their own customers.
(3) Constitutes the trading, manufacturing, and engineering construction industries.

67 6. BUSINESS OVERVIEW (Conf’dj (a) Business Focus We are focusing in the business of trading and distribution of third party brands of PCE and Measurement Instruments as well as our own brands of PCE and Measurement Instruments. Our Group currently supplies a comprehensive range of PCE and Measurement Instruments to a variety of customers and our products serve their industrial activities as follows:
~
MPTE ‘:”It;;;,,:>;>;,,, <i”,> Process control is a statistics and engineering discipline that deals with architectures, mechanisms and algorithms for maintaining the output of a specific process within a desired range. peE refers to equipment used to provide appropriate signal transformation and direct a process according to signals, which enables mass production of consistent products from continuously-operated industrial processes. PCE that we trade in and distribute include Valves, switches, actuators, bursting discs, explosion protection devices, expansion joints, float/steam traps, orifice plates, venturi tubes, positioners, strainers, tank protection venting devices, tank ball floats and floating roof & seals system. Measurement Instruments are equipment and instruments that are used in variable measurement. Measurement Instruments that we trade in and distribute include gauges, recorders, pressure transmitters, sight glasses, level gauges and cocks. MPTE are equipment that are used to harness power transmission through the use of mechanical elements. MPTE that we trade in and distribute include pump. In 2015, we have expanded our product range with the supply of MPTE, in particular Pumps, to the palm oil and oleochemicals industry subsequent to the acquisition of distribution right from KSB Malaysia Pumps & Valves Sdn Bhd on 21 October 2015. Pump is a device used to move fluids by mechanical action. Such expansion of our product range is in line with our future plans and strategies, as set out in Section 6.18.1 (iv). We believe there is a good opportunity for growth through expanding the range of products we offer to our customers. Generally, the products above are complementary whereby our PCE customers require Measurement Instruments in order to measure various parameters within a piping system. These products ensure productivity, safety and efficiency in the industrial activities carried out by our customers. Our business is further enhanced by the establishment of our own brands, WAGI in 2007 which carries PCE, VMX in 2008 which carries both PCE and Measurement Instruments, and Omaval in 2009 which cal1’ies PCE. They are managed and marketed by Dancomech Engineering. WAGI carries only Valves used in the palm oil and petrochemicals industries. Omaval mainly cal1’ies stainless steel Valves in the palm oil and oleochemicals industry, and VMX mainly canies PCE and Measurement Instruments which are used in general and in multiple industries, such as the palm oil, heating, ventilating and air conditioning (HVAC) and water treatment industries. The manufacturing of our own brand of products are outsourced to our OEM, which are based in the People’s Republic of China and Taiwan. IThe rest of this page has been intentionally left blank 68 6. BUSINESS OVERVIEW (Conf’dj A variety of industries utilise PCE and Measurement Instruments. Where a customer is flexible in their product requirements in terms of the brand and standards of the product, we offer them product options from our WAGI, VMX and Omaval brands. In addition, the delivery period for products from our own brands is shorter compared to the delivery of products from third party brands carried by our Group. This is favourable to our customers when their orders are time sensitive. The types of customers that purchase our own brands comprise EPCC Contractors, engineering consultants, OEM, hardware retailers, equipment manufacturers and end users. Our business has been predominantly in Malaysia, with our subsidiaries based in Kuala Lumpur. (b) Type of Suppliers Our products are sourced from either third party suppliers (for third party brands of products) or OEM (for own brands ofproducts). Further information regarding our suppliers are set out in Section 6.11. (c) Type of Products As at LPD, we carry a total of twelve (12) product categories as part of our PCE inventory and five (5) product categories as part of our Measurement Instruments inventory. The table below sets out an overview of the types of products distributed by our Group. By and large, each product type we carry may consist of products manufactured by more than one brand, including our own brands of WAGI, VMX and Omaval. As at the LPD, we have expanded our product range with the supply of MPTE products in particular Pumps to the palm oil and oleochemicals industry subsequent to the acquisition of distribution right from KSB Malaysia Pumps & Valves Sdn Bhd on 21 October 2015. Pump is a device used to move fluids by mechanical action. We carefully select and stock a variety of sizes and different qualities within each product type to suit the customer’s specifications and budget, for use in the Main User Industries as referred to in Section 6.1.1 (t). (i) Process Control Equipment No.  Product Category  Description  1.  Valves  A Valve regulates, directs and controls the flow of fluids, or controls the pressure, through a passageway. These fluids may include gas, liquid, fluidised solids or slurry. A Valve’s lifespan depends on its duty cycle which impacts its wear and tear. Its lifespan is also affected by its application, due to the working pressure and temperature imposed on it, which may vary depending on the type of application the Valve is subject to. Lastly, a Valve’s lifespan correlates with what the Valve is made of. A Valve can be made of different materials, such as cast iron, cast and forged carbon steel, low cast and forged carbon steel, aluminium bronze, brass, cast and forged stainless steel and special materials such as Duplex Stainless Steel, Super Duplex Stainless Steel, Monel, Inconel and Hastelloy C.
6. BUSINESS OVERVIEW (Conl’dj No.  Product Category  Description  Some of the more common Valves sold by our Group are as follows: Ball Valve Gate Valve Safety I Pressure Relief Valve Solenoid Valve Check Valve Globe Valve Butterfly Valve Knife Gate Valve

6. BUSINESS OVERVIEW (Cont’d) No. Product Category Description Penstock Diaphragm Valve Valve
Blowdown Pressure Reducing Valve
Switches A switch, as defined in electrical context, is a component used to break an electrical circuit, to interrupt current or divelt current among conductors. 2.
3. Actuator

 

An actuator is a device that transforms a source of energy into a force to move or control a mechanism or system. The source of energy may include electric current, hydraulic fluid pressure, or pneumatic pressure. Actuators are typically integrated into a control system together with Valves to become part of an automation system and used in industrial processes. 6. BUSINESS OVERVIEW (Conl’d) No. Product Category Description Bursting Disc / Explosion Protection Device 4.
5.  Stainless Steel/Rubber Flexible Expansion Joint  6.
A bursting disc is a non-reclosing pressure relief device that protects a pressure vessel, equipment or system fi’om over pressurisation and other potentially damaging vacuum conditions. An explosion protection device is a safety device that protects and prevents an explosion in a plant by venting and other explosion suppression methods. A stainless steel! rubber flexible expansion joint is an assembly designed to safely absorb the heat-induced expansion and contraction of various construction materials, to absorb vibration, or to allow movement due to machine vibration and pipe expansion. As opposed to stainless steel expansion joint, rubber flexible expansion joint is not heat resistant. A float trap is a device used to discharge condensate and non-condensable gasses. A steam trap is a self-contained Valve which automatically drains the condensate from a steam containing enclosure while remaining tight to live steam, or if necessary, allowing steam to flow at a controlled or adjusted rate. Most steam traps will also pass non­condensable gases while remaining tight to live steam. 7. Orifice Plate / Venturi An orifice plate can be used as a simple pressure reducing deVice, or to limit the flow rate in a pipe line.
The major advantage of venturi tubes over an orifice plate is in the area of pressure recovery.
8. Positioner A positioner is a device that is attached to an actuator in order to control and modulate the Valve’s opening and closing position.

 

6. BUSINESS OVERVIEW (Cont’d) No.  Product Category  Description  9.  Strainer  A strainer enables liquid and air filtration to occur, even  at high-pressure conditions.

Tank Protection Venting Device 10. 11. 12.

A tank protection venting device is designed for protecting storage vessels, tanks, and pipes. It also prevents flame transmission when an explosion occurs and increases venting capacity. A tank ball float regulates the admission or discharge of liquid to or from a tank, and the float is placed on the surface of the liquid within the tank to maintain a nearly constant height of liquid. A floating roof & seals system prevents vapour loss and contamination of stored products from storage tanks. The systems generally consist ofthe following: Aluminium Dome Cover External Floating Roof Internal Floating Roof Roof Drain System Floating Suction & Oil Skimmer Loading Arm Tank accessories [The rest of this page has been intentionally left blank] 6. BUSINESS OVERVIEW (Cont’d) (ii) Measurement Instruments No.  Product Category  Description  I.  Gauges  A  gauge  is  used  to  make  measurements  of  various  parameters such as temperature, pressure and volume.

2. Recorder A recorder is able to record and provide documentation of parameters that are being controlled or measured by Valves and other instruments.
3. Pressure Transmitter A pressure transmitter is used to monitor the amount of pressure applied to a part of a process that is required in order to achieve the desired result. It is also used to ensure that no machinery is building up pressure beyond the levels that are considered safe to operators.
4. Sight Glass A sight glass is a tank accessOlY component which is used to observe the level of liquid in a tank.
5. Level Gauge And Cock A level gauge and cock measures the level of medium inside a tank.

 

6. BUSINESS OVERVIEW (Cont’dj (iii) Mechanical Power Transmission Equipment No.  Product Category  Description  1.  Pump  A pump is a device that move fluids by mechanical action.
The majority of our products are sourced from overseas third party suppliers and OEM. We only source for products locally to cater for urgent orders from our customers. The table below sets out an overview ofthe brands and corresponding product types that we carry: I . I Countries ofBrand I Product Types Manufacturers / SupplIers Ori~in Process Control Equipment Ayvaz  Steam Trap, Check  Ayvaz A.S  Turkey  Valve and Stainless Steel  Expansion Joint  Crane Flowseal  High Performance  Crane Australia Pty Ltd  USA  Butterfly Valve  DHC  High Performance and  DHC Co., Ltd.  South Korea  Rubber Lined Butterfly  Valve  Diaval  Diaphragm Valve  Comeval  Spain
DSC Steam Trap DSC Taiwan Eurotec Namur Standard EUROTEC Germany Solenoid Valve and Antriebszubehor GmbH Switches Festo Pneumatic Actuator and Festo Sdn Bhd Germany Namur Valve Korea Float Aluminium Dome Roof, Korea Float Co Ltd South Korea Floating Roof Seal System, Internal Floating Roof System, Roof Drain! Floating Suction! Floating Skimmer System, Tank Safety Valve and other devices Korea Steel Power Tank Protection Venting Korea Steel Power Co. Ltd. South Korea Corporation Device (Tanktech KSPC)
6. BUSINESS OVERVIEW (Cont’d) I .I Countries ofBrand I Product Types Manufacturers / SupplIers Origin Leser Safety / Pressure Relief Leser GmbH & Co. KG Germany Valve Neway Gate Valve, Globe Neway Valve (Singapore) People’s Valve, Check Valve, Pte. Ltd,o) Republic of Ball Valve, Butterfly China Valve and Strainer Omaval(2) Ball Valve OEM People’s Republic of China and Taiwan Power-Genex Positioner and Switches Power-Genex Ltd. South Korea Rembe Bursting Disc and Rembe GmbH Germany Explosion Protection Ritag Wafer Type Non-Retum Ritag Ritterhuder Germany Valves and Wafer Type Armaturen GmbH & Co. Check Valves Armaturenwerk KG Rototherm Orifice Plate British Rototherm Co. Ltd. United Kingdom Uni-D Solenoid Valve Pro Uni-D Co., Ltd Taiwan VMX(2) Blowdown Valve, Gate OEM People’s Valve, Globe Valve, Republic of Check Valve, Ball China and Valve, Butterfly Valve, Taiwan Pressure Reducing Valve, Blow Down Valve, Rubber Flexible Expansion Joint and Tank Ball Float WAGI(2) Gate Valve, Globe OEM People’s Valve, Check Valve, Republic of Ball Valve, Butterfly China and Valve, Strainers, Knife Taiwan Gate Valve and Penstock Valve
Measurement Instruments Fival Level Gauge and Cock Fival SrI Italy Rototherm Recorders, Pressure British Rotothenn Co. Ltd. United Transmitters and Gauges Kingdom VMX(2) Gauges OEM People’s Republic of China and Taiwan Max Mueller Sight Glass Max Mueller AG Switzerland 6. BUSINESS OVERVIEW (Conf’d) Brand  I Product Types  I . ICountries ofManufacturers / SupplIers Ori2in  Mechanical Power Transmission Equipment  KSB  Pump  KSB Malaysia Pumps & Valves Sdn Bhd  Germany
Notes: (I) In 2001, Dancomech Engineering was appointed as an authorised distributorfor Malaysia by Neway Valve (Suzhou) Co. Ltdfi’om the People’s Republic ofChina to supply butterfly valves, gate valves, check valves, globe valves and ball valves under the Neway brand. Since the setting up ofNeway Valve (Suzhou) Co. Ltd. ‘s regional sales o./fice, Neway Valve (Singapore) Pte. Ltd. in 2013 which is based in Singapore and covers the region ofSouth-East Asia (including Australia, New Zealand and India), Dancomech’s latest renewedappointmentas an authoriseddistributor ofthe saidvalves is granted by Neway Valve (Singapore) Pte. Ltd.
(2) These are our own brands which are outsourced to our OEM based in the People’s Republic of China and Taiwan.

(d) Distribution Network We adopt a combination of direct and indirect distribution strategies as follows: Traders and Manufacturers Distributors
EPCC Contractors/ End Users/ Engineering Customers/ Consultants/ Project Owners in OEM/ Hardware Main User Retailers/ Equipment Industries Third Party Supplier Manufacturers I OEM Direct and Indirect Distribution

Direct and Indirect Distribution Direct Distribution
(i) Direct Distribution Our direct distribution channel approach is performed through our own sales and marketing team, which focused on selling our products directly to traders and distributors, EPCC Contractors, engineering consultants, OEM (in particular OEM who are specialised in boiler, machine/equipment maker that require our products to be included in their machines in order for the machines to operate), hardware retailers, equipment manufacturers and end users who are from the Main User Industries. Our direct distribution approach enables us to work closely with our customers to evaluate and attain a better understanding of our customers’ requirements, which serves as a feedback mechanism for us to improve the range and quality of our products. 77 6. BUSINESS OVERVIEW (Cont’d) (ii) Indirect Distribution Our indirect distribution channel approach is performed by utilising the existing network of our intermediaries including traders and distributors, EPCC Contractors, engineering consultants, OEM, hardware retailers and equipment manufacturers to expand our market coverage without the need for significant investment in sales and marketing infrastructure. Unlike direct distribution where the products purchased from Dancomech are for the customers’ own consumption, indirect distribution involves the customers acting as an intermediary who supplies the products purchased from us to their own customers. We adopt the above approach for both local and international distribution of products. (e) Type of Customers Our customers consist of the following: (a) Traders and Distributors;
(b) EPCC Contractors/ Engineering Consultants/ OEM/ Hardware Retailers/ Equipment Manufacturers; and
(c) End Users/ Customers/ Project Owners in Main User Industries

Majority of our customers purchase as and when the need arises. The normal credit period generally granted by our Group to our customers is between 30 days to 90 days. Our credit terms to customers are assessed and approved on a case-by-case basis, taking into consideration various factors such as relationship with customers, customers’ payment history and creditworthiness while new customers are subject to our credit verification process. (f) Revenue Contribution Our revenue registered a positive growth at AAGR of 2.75% and CAGR of 1.35% for the period from FYE 2012 to FYE 2015. In FYE 2013, we secured a large purchase order fi’om KNM, the delivery of which was completed over FYE 2013 and FYE 2014. Such purchase order has led to an increase in our revenue by 26.88% in FYE 2013. Although we recorded a higher revenue in FYE 2014 as compared to FYE 2012, our revenue for FYE 2014 is lower than that ofFYE 2013 due to a lower contribution from the large purchase order. For FYE 2015, our total revenue has declined by 13.60% mainly caused by lower sales volume from customers involved in the oil and gas industry and palm oil and oleochemicals industry. As noted in the IMR Report in Section 7, average crude oil prices declined by 47.2% as compared to 2014 while average crude palm oil price dropped by 9.7%. Consequently, market players within the oil and gas and palm oil and oleochemicals industries were pressured on the business profitability and have shied away from new investment or reduce or defer their investment decisions. Such market condition affects our business as we supply our PCE and Measurement Instruments to customers from the oil and gas and palm oil and oleochemicals industries. Our dependency on the performance of end user markets is detailed in Section 4.2.2. Further information regarding our customers and Main User Industries and the impact of the market condition on our revenue are set out below. [The rest of this page has been intentionally left blank] 6. BUSINESS OVERVIEW (Conl’d) (i) Revenue Contribution by Customers The table below sets fOith the breakdown of our Group’s revenue by customers:
< ————————————————–­ Audited  ————————————————>  Customers  FYE 2012  FYE 2013  FYE 2014  FYE 2015  Number of  RM  0/0  Numbuof  RM  0/0 Number of  RM  0/0  Number of  RM  0/0  Customers  ‘000  Customers  ‘000  Customers  ‘000  Customers  ‘000  End users  250 16,005  24.41  278 17,251  20.74  265 20,614  26.09  303 19,082  27.96  Intermediaries  -EPCC  Contractors  22,725  34.66  38,503  46.28  31,954  40.45  24,731  36.23  -Traders and  Distributors  18,557  28.30  19,574  23.53  18,309  23.18  16,608  24.33  -OEM  8,279  12.63  7,805  9.38  8,124  10.28  7,832  11.48  Others  – – 57  0.Q7  – – – – Subtotal  1,131  49,561  75.59  1,152  65,939  79.26  1,155 58,387  73.91  1,156  49,171  72.04  TOTAL  1,381  65,566  100.00  1,430  83,190  100.00  1,420  79,001  100.00  1,459  68,253  100.00
As at FYE 2015, we have a diverse customer base of 1,459 customers. (ii) Revenue Contribution by Main User Industries Our customers mainly comprise EPCC Contractors, engineering consultants, OEM, hardware retailers, equipment manufacturers and end users within the Main User Industries. Revenue contribution from the distribution of PCE and Measurement Instruments to the industries within the Main User Industries for the past four (4) years (FYE 2012 to FYE 2015) is as follows: <————————————–Audited————————————–> FYE 2012 RM’OOO  0/0  FYE 2013 RM’OOO  0/0  FYE 2014 RM’OOO  0/0  FYE 2015 RM’OOO  0/0  Palm oil and oleochemicals  38,923  59.37  43,228  51.96  45,577  57.69  40,359  59.13  Oil and gas and petrochemical  9,916  15.12  22,393  26.92  15,104  19.12  9,351  13.70  Water treatment and sewerage  1,717  2.62  2,261  2.72  2,990  3.79  3,392  4.97  Others(J)  15,010  22.89  15,308  18.40  15,330  19.40  15,151  22.20  Total  65,566  100.00  83,190  100.00  79,001  100.00  68,253  100.00
[The rest of this page has been intentionally left blank] 79 6. BUSINESS OVERVIEW (Cont’d) Note: (I) Constitutes ofthe trading, manufacturing, and engineering construction industries, details as per the table below. <—————————————–Audited—————————————-> Trading  FYE 2012 RM’OOO % 9,688 14.78  FYE 2013 RM’OOO % 8,936 10.74  FYE 2014 RM’OOO % 9,03 11.44 7  FYE 2015 RM’OOO % 9,401 13.77  Manufacturing  2,738  4.17  2,469  2.97  2,86 2  3.62  2,35 4  3.45  Engineering Construction  2,584  3.94  3,903  4.69  3,431  4.34  3,396  4.98  Total  15,010  22.89  15,308  18.40  15,330  19.40  15,151  22.20
For the past four (4) years, more than 50 per cent of our revenue was contributed by customers from the palm oil and oleochemicals industry. As detailed in the IMR repOli in Section 7, the palm oil and oleochemicals industry has experienced a declining price trend in 20 IS and the PCE and Measurement Instruments market is likely to witness a lower demand from this industry if the declining pricing trend prolongs. However, crude palm oil prices began to exhibit signs of recovery from January to April 2016, and is expected to continue to gain growth momentum moving forward. Therefore, the palm oil and oleochemicals industry in Malaysia is likely to improve in the medium to long term and such improvement is anticipated to have a positive impact on the PCE and Measurement Instruments market. The oil and gas industry which forms paIi of our Main User Industries has also experienced a declining price trend in 20 15. The downward pressure on oil prices could adversely affect the PCE and Measurement Instruments market in the medium term (year 20 IS to 2018) as oil companies are forced to reassess their development projects. Nevertheless, demand for oil and gas is projected to be sustainable in the long run, which will benefit the PCE and Measurement Instruments market. FUliher, on a positive note, Dancomech is not heavily reliant on the oil and gas industIy. In the p.vp.nt HUlt tllP. e;lnhill r.nmmooities prices reonr.tion prolongs, we will focus our marketing activities to our customers in other industries, namely the treatment of water sewage industries. As can be seen from the above table, we are gradually increasing our exposure to the water treatment and sewerage industry which has a positive outlook moving forward. The increased revenue from this industry is expected to compensate for the short term volatility of the oil and gas industry. In addition, our business will also be suppOlied by recurring income generated from the need for replacement of Valves by new or existing customers. Despite the unfavourable conditions in the oil and gas and palm oil and oleochemicals industries, the PCE and Measurement Instruments market for industrial pipeline systems in Malaysia registered a positive growth of 1.3%, suppOlied by demand stemming mainly from the water services and manufacturing industries. Growth was also supported by the needs for facilities maintenance and equipment replacement within the oil and gas and palm oil and oleochemicals industries. Overall, there is a positive outlook for the PCE and Measurement Instruments market in the long term. Further details regarding the market outlook and our business prospects are set out in Section 6.18.2 and the IMR repOli in Section 7. IThe rest of this page has been intentionally left blank] 80 6. BUSINESS OVERVIEW (Conf’d) (g) Competitive Advantages We believe that our Group’s competitive advantages are as follows: (i) Diverse Product Range We distribute a wide range of PCE which comprise a variety of Valves all of which have different functions and cater to different end users in different industries. We also carry a variety of PCE such as switches, actuator, bursting discs, explosion protection devices, expansion joints, float/steam traps, orifice plates, venturi tubes, positioner, strainer, tank protection venting devices, tank ball floats and floating roof & seals systems to complement our Valves. Please refer to Section 6. 1.1 (c) for our range of products in detail. As at LPD, we carry a total of twelve (12) product categories as part of our PCE inventory and five (5) product categories as part of our Measurement Instruments inventory. As at the LPD, we have expanded our product range with the supply of MPTE products in particular Pumps to the palm oil and oleochemicals industry subsequent to the acquisition of distribution right from KSB Malaysia Pumps & Valves Sdn Bhd on 21 October 2015. Pump is a device used to move fluids by mechanical action. The diversity in our product range is impOltant for our customers who would generally prefer to source their supplies from a single supplier for ease and familiarity of dealings. (ii) Authorised Distributors and Possession of Own Brands We take pride in being the authorised distributor of several international suppliers. These distributorships enable us to market the products under established brand names. We are confident that adequate supply will be maintained in the foreseeable future due to the long term and proven relationships with our suppliers. The diversity in our product range also provides us with considerable synergies for cross-selling as we will be able to provide our existing and new customers with a range of trading products. By supplying products from multiple brands, we are able to cater for a customer’s budgetary requirements on the price and quality of a product. Please refer to Section 6.12 for details of our principals and the distribution rights they have granted to us. In addition, possession of our own brands is one of our strengths as it has synergistic effect with our distribution business. Revenue from our own brands namely WAGI, VMX and Omaval products have grown exponentially since we introduced our brands to our existing customers. They have amounted to RM23.57 million in the FYE 2012 consisting of35.95% of our revenue for the FYE 2012, increasing to RM24.95 million in the FYE 2013, consisting of 29.99% of our revenue for the FYE 2013, RM25.10 million in the FYE 2014, consisting of 31.77% of our revenue for the FYE 2014, and RM26.64 million in the FYE 2015, consisting of39.02% of our revenue for the FYE 2015. Both brands from our foreign suppliers and our own brands under our distribution cater to different customer requirements including pricing, technical, industries, regulatory compliance, etc, and are subject to customer’s requirements. (iii) Experienced Management Team As outlined in Section 7, product and technical knowledge is crucial in the PCE and Measurement Instruments market. The requirements on PCE and Measurement Instruments vary across different industrial sectors, such as the palm oil and oleochemicals, oil and gas and petrochemical, and water treatment and sewerage industries. Having extensive product and technical competencies knowledge allows a market paIticipant to understand the requirements for the respective industrial sectors and would be able to supply their products accordingly. This product and technical knowledge typically comes together with industrial experience. 6. BUSINESS OVERVIEW (Collt’d) The core of our business lies with the expeltise of our experienced management team in the PCE and Measurement Instruments market who leads and manages our business operations. Our Managing Director, Aik Swee Tong, together with Aik Cwo Shing, our Executive Director, have been managing our business since we began operations in 1989. Each of our Managing Director and Executive Director has between 20 to 30 years’ experience in the PCE and Measurement Instruments market. Since the incorporation of Dancomech Engineering in 2000, its distributorship rights have expanded to several foreign brands and it has secured orders from notable customers. Details of our achievements are set out in Section 5.7. In addition, we are also suppOlted by a strong Management team which includes our Chief Operating Officer, Aik Hui Luan, Senior Sales Managers, Aik Kwo Liang and Wong Chiau Siew who each has between 20 to 30 years’ experience in the PCE and Measurement Instruments market. The long years of service by our Management team indicates stable and continuing relationship with our Group, which are beneficial to our business operations, sustainability and growth. Please refer to Sections 8.2 and 8.4 for the profiles of our Managing Director, Executive Director and key management personnel. (iv) Value-Added Services
With the vast experience of our Management team, our Group is equipped to provide services which include advising our customers as to the optimal combination of products they may require in accordance with their specifications and desired results. Our staff is also trained to assist our customers in any assembly of these products upon their request. For example, some PCE may be assembled onto our Valves. In addition, we also offer consultation where products are required to be customised based on the customer’s requirements and specifications. We then perform customisations on the products and commissioning on the customised products to ensure quality control. We also offer an after-sales troubleshooting service where in the event of any detection by our customers of issues or problems arising from our products, we provide support in the form of addressing the related products’ operational issues, or identifying as well as resolving technical issues. Please refer to Section 6.2 for full details of the pre-sales and after sales services we provide to our customers.
(v) Extensive Customer Base

As at FYE 2015, we have a diverse customer base of 1,459 customers fi-om various industries, comprising traders and distributors, EPCC Contractors, engineering consultants, OHM, hardware retailers, equipment manufacturers and end users. This large customer base provides us with the platform to sustain and grow our business. In addition, it mitigates our reliance on our major customers as set out in Section 6.10 and provides us with a number of areas of growth and oppOltunities. We operate from our distribution hub in Kuala Lumpur which enables us to extend our geographical coverage throughout Malaysia and internationally to provide convenience and prompt delivery to our customers. Please refer to Section 6.12 for details of our distributorship rights, whereby the distributorship rights granted by Korea Steel Power Corporation (representative of Tanktech Co. Ltd), DHC Co Ltd, and British Rototherm Co. Ltd do not preclude our Group from selling to Indonesia. In addition, we are also authorised by Neway Valve (Singapore) Pte Ltd to sell to a specific entity in Indonesia. [The rest of this page has been intentionally left blank) 6. BUSINESS OVERVIEW (Conl’d) (vi) Proven Track Record We have a proven track record with a history that spans approximately 26 years since the establishment of DET in 1989. Over the years, our major orders have increased from approximately RM600,000 in 1992 to RM14.7 million in 2012. As at FYE 2015, our customer base has increased to 1,459 customers from various industries, comprising traders and distributors, EPCC Contractors, engineering consultants, OEM, hardware retailers, equipment manufacturers and end users. We place priority in establishing good rapport and long term relationships with our customers by providing high quality, prompt delivery and reasonably priced products. Our efforts result in a steady increase in our list of long standing customers. Our time in the PCE and Measurement Instruments market has provided us with an established customer base whereby more than five (5) of our top 10 customers for FYE 2015 have been dealing with us for at least 5 years. These business relationships with our customers are an indication of the assurance of reliability and quality in our products. In addition, we are the authorised distributor of several foreign suppliers to distribute established brand name products. In 2000, Dancomech Engineering was incorporated and in 2001 was appointed as an authorised distributor for Malaysia by Neway, with its latest renewed appointment by Neway Valve (Singapore) Pte. Ltd. since the establishment in 2013 of a regional sales office based in Singapore by Neway. CUlTently, we have been granted seven (7) exclusive or sole distributorship rights and eleven (11) distributorship rights by our suppliers. As at LPD, we carry a total of twelve (12) product categories as part of our PCE inventory and five (5) product categories as part of our Measurement Instruments inventory. Since 2007, Dancomech Engineering is able to synergise its distribution business by introducing its own brands, namely WAGI, VMX and Omaval. The revenue from its own brands has been increased from approximately RM23.57 million in FYE 2012 to RM26.64 million in FYE 2015. Due to the growth and expansion in business, our total workforce consists of 44 personnel as at LPD where we are supported by an experienced management team leads by our Managing Director, Aik Swee Tong, together with Aik Cwo Shing, our Executive Director and other key management personnel. (vii) Long-standing Relationships with our Major Suppliers Over fourteen (14) years of Dancomech Engineering’s operation, we have nurtured long-term business relationships with our major suppliers as described in Section 6.11. Owing to good relationships with our major suppliers, we are confident of continued SUPPOIt and timely supply of the products from them. In addition, we also enjoy competitive prices and good credit terms from our major suppliers. These long-term business relationships enable us to maintain our overall competitive edge in the PCE and Measurement Instruments market. [The rest of this page has been intentionally left blank]

6. BUSINESS OVERVIEW (Col/t’d) OUR BUSINESS AND OPERATIONAL PROCESSES (a) Pre-Sales Process Our pre-sales process is illustrated in the following flowchart: Receipt of inquiry from customer Consultation with our salesperson Providing customer with a quotation Order cancelled:
~  I If customisation of order is required  II If customisation of order is not required  I  I  Commissioning of products  I  Quality inspection
Delivery of products to customer (1) Receipt of inquiry from customer In general, we are approached by our customers in the following manner: (i) Customers who are seeking advice on the type of product(s) suitable for their needs and requirements; and/or
(ii) Customers who would like to place an order from us directly.

 

6. BUSINESS OVERVIEW (Cont’d) (2) Consultation with our salesperson Upon receipt of inquiry from our customer, we will arrange for a consultation session between the customer and our salesperson to address the customer’s needs by identifying suitable product(s) for the customer and offering consultation where products are required to be customised based on the customer’s requirements and specifications. In addition, if any relevant documents such as catalogues, drawings, procedures and cel1ificates are needed, the salesperson will compile the documents and provide the same to the customer. If a technical clarification is required, we will attempt to provide clarification, failing which the supplier will assist us with the clarification. (3) Providing customer with a quotation Once we have ascertained the product sought by our customer pursuant to paragraph 2 above, we will prepare a quotation for the customer’s acceptance. The process involved in preparation of the quotation depends on the product sought by the customer. If the product sought by the customer: (i) is common in nature and stocks are available in our warehouse, a draft quote will be prepared based on the price list in respect ofthe said product; or
(ii) is a product which we do not keep ready stocks, a draft quote will be prepared based on the quotation to be provided by our suppliers.

The draft quote prepared pursuant to either paragraph 3(a) or 3(b) above will subsequently be sent to our Management for their approval. Our Management may revise the said draft quote after taking into consideration, among others, the following factors: (i) the size ofthe order;
(ii) the existence of competitors or competition; and

(iii) the existing rate for mark up within the Group. The approved draft quote will thereafter be finalised (“Quotation”) and sent to the customer for their acceptance. (4) Confirmation of Order
If the customer accepts the Quotation and confilms the order, the customer will issue us a purchase order together with payment of deposit (if applicable).
(5) Customisation of Order
Ifcustomisation of the products is required, the products will be customised by us in accordance with the customer’s requirements and specifications.
(6) Quality Inspection

Prior to delivery of the products or customised products to our customers, visual inspection will be conducted to ensure that the products are in good condition and are properly assembled, where our assembly service has been employed. [The rest ofthis page has been intentionally left blank] 85 6. BUSINESS OVERVIEW (Cont’d)
(7) Delivery of products to customer
Upon completion of the quality inspection, the products or customised products will be delivered to our customers together with our invoice.
(b) After Sales Process

Upon completion of sales of our products, we offer our customers twelve (12) months’ warranty against manufacturing defects upon the commissioning of installation, or eighteen (18) months’ waITanty upon delivery, whichever comes first. In practice, all warranty claims made by our customers due to manufacturing defects will be reimbursed by our suppliers and OEM, unless such defects were due to our fault such as product damages which occurred during delivery by us to the customer. Hence, if there is such warranty claim by our customers, we will first replace the defective product from our existing stocks (if available) and thereafter, request for a replacement from our supplier. The replacement of a defective product by our supplier will take about 6 to 8 weeks. Despite such practice, we will only make claims against our suppliers for reimbursement if the value of the defective products is more than RM I,000.00. This is because incidental costs such as freight charges, custom duty and transport charges will be incurred for the purposes of transporting the replacement products to our office and therefore, it is not viable to make a claim for reimbursement if the value of such claim is below the aforesaid amount. Our Group has experienced minimal claims for our warranty against manufacturing defects and the number of warranty claims made by our customer for the financial years under review and up to the LPD are set out below: Period  Number of warranty claims by our customer  Approximate range of value of the warranty claims (RM)  FYE 2012  2  300 -4,300  FYE 2013  0  – FYE 2014  8  50 -46,000  FYE 2015  23  40 ~ 5,300  Up to LPD  3  2,000 -9,500
Save for a warranty claim by our customer in FYE 2012 (which was due to products damages which occurred during the delivery of the products by us to the customer) and another warranty claim by our customer in the period up to LPD (which our 3upplicr i3 proccssing our claim for reimbursement), all other warranty claims made by our customers in FYE 2012 up to LPD, of which the value is more than RMI,OOO.OO and a claim for reimbursement have been submitted have been reimbursed by our suppliers. In FYE 2015, the number of warranty claims by our customers increased from 8 claims in FYE 2014 to 23 claims. However, the majority of those claims were due to minor damages such as leaking, bad finishing and other workmanship issues. In the event our customers detect any issues or problems arising from our products, we will normally provide our suppOli in the form of addressing related products’ operational issues, or identifying as well as resolving technical issues. We do not implement a set timeframe for the resolution of any troubleshooting we undeliake with our customers. We aim to successfully resolve operational or technical issue(s) within a reasonable timeframe on a case-by-case basis, propOliionate to the complexity ofthe issue(s). [The rest of this page has been intentionally left blank] 6. BUSINESS OVERVIEW (Conf’dj Our after sales process is illustrated in the following flowchart: Receipt of customer’s request for support YES NO Request for particulars  Urgent?  Ascertaining the issue/problem  If the issue/problem is complex  If the issue/problem is not complex  Provide onsite support  Provide offsite SUppOit  If issue/problem cannot be resolved
Request for return of product for testing and repair Return ofthe repaired product to customer (1) Receipt of customer’s request for support Our troubleshooting process begins with categorising our customers’ issues or problems into urgent and non-urgent categories. For non-urgent cases, we will request that the defective product be returned to us or our supplier for testing to identify the issue/problem. Thereafter, the defective product will be repaired and returned to the customer. For urgent cases, we will take steps (2) to (5) below. (2) Request for particulars We will request for among others, a brief description of the issue/problem and photographs of the defective product for us to identify the issue/problem.
6. BUSINESS OVERVIEW (Cont’d) (3) Ascertaining the issue/problem If the issue/problem can be easily rectified and does not require onsite support, we will provide offsite support as detailed in paragraph 4 below. For issues/problems which are complex in nature, we will provide onsite support as detailed m paragraph 5 below. (4) Provision of offsite support In order to resolve our customer’s issue/problem in a timely manner, we provide an explanation of the proposed solution to our customers via telephone or email. However, if the issue/problem remains unresolved, we will arrange for onsite support as detailed in paragraph 5 below. (5) Provision of onsite support For issues/problems which are complex in nature or remain unresolved after offsite support is provided, we will arrange for a member of our technical staff, or a member of the technical staff of the relevant supplier, to attend to the problem on the site. [The rest of this page has been intentionally left blank] 6. BUSINESS OVERVIEW (Cont’d)
RISK MANAGEMENT POLICIES The identification and proper management of the risks applicable to our Group are an important priority of the Board. We have adopted a risk management policy appropriate for our business. This policy highlights the risks relevant to our Group’s operations and our commitment to design and implement systems and methods appropriate to minimise and control such risks. As at LPD, we have the following policies in place: (a) we generally hold four (4) to six (6) months of stocks to maintain a sustainable level of inventories to ensure timely delivery to our customers as well as to guard against any foreseeable increased costs (e.g. fluctuations in shipping cost), and we also adopt a cost-plus approach in our pricing policy;
(b) in mitigating our exposure to credit risk, we will assess the credit standing of the existing and prospective customers prior to accepting their orders based on our previous experience with them. In addition, we regularly review our trade receivable ageing and monitor subsequent collection of debts. Our Group’s usual follow-up procedures include sending out reminder letters, calls and field visits as well as taking legal action on a case to case basis to recover outstanding debts;
(c) in mitigating our exposure to exchange rate fluctuations, we operate foreign currency accounts in USD and Euro, and fixed deposit accounts in USD and GBP where we receive payments in the respective currencies and utilise them when the need arises, without converting the said currencies. In addition, our Management also take the following steps to further mitigate the foreign currency risk:
(i) we monitor closely the movement of the foreign currencies applicable to our business and we include a buffer in our calculation of costs for our purchases. Therefore, any cost increase will be passed on to our customers in term of higher prices;
(ii) for orders relating to our customers’ projects that require a delivery of products over a span of time, we hedge against the foreign currency required to cover our costs for the said period of time; and

(iii) for large purchase orders by our customers, we will propose to transact in the cUiTency in which we will make our purchases from our suppliers to eliminate any foreign currency risk. (d) we seek to limit risk of fire and industrial accidents by implementing the following plans and risk management practices:
(i) our facilities are equipped with fire-rated doors, and basic regulatory fire-fighting equipment such as fire extinguishers and fire sprinklers complete with alarm system. Our employees are trained to use such equipment with proper fire-fighting techniques and procedures, and are subject to evacuation drills; and
(ii) we ensure that our facilities, warehouses and workshops comply with safety requirements stipulated in various licences issued by the relevant authorities. We also conduct in-house training and briefing on safety requirements and the proper use of equipment and machinery.
(e) in the absence of long term contract with our customers, we seek to maintain a large customer base and established business relationships with our customers to ensure consistency in sales. As at FYE 2015, we have a diverse customer base of 1,459 customers from various industries, whereby more than five (5) of our top ten (10) customers for FYE 2015 have been dealing with us for at least five (5) years.

[The rest of this page has been intentionally left blank) 89 6. BUSINESS OVERVIEW (Collt’d) Further, the absence of long term contract with our customers has not led to any sales disruption in our dealings with our customers as their orders will only be accepted if: (i) we have available stocks in our warehouse; or
(ii) the customer agrees that the product will only be delivered to him upon receipt of the same from our suppliers.

QUALITY CONTROL PROCEDURES Our Group’s quality control philosophy and procedures have ensured our continued growth and success. In our distribution business, we identify quality products through our third party suppliers who in turn, implement a general two-step quality control process in the manufacture of their products. Firstly, our third party suppliers would have to manufacture products in accordance with the standards set by the respective associations or professional bodies: • American Petroleum Institute (API), a national trade association in the United States of America that represents all aspects of the country’s oil and natural gas industry;
• American Society of Mechanical Engineers (ASME), the leading international developer of codes and standards associated with the art, science, and practice of mechanical engineering;
• Deutsches Institut fUr Normung (DIN), the Gennan Institute for Standardization which is acknowledged by the federal government of Germany as the national standards body that represents German interests in European and international standards organisations;
• Japanese Industrial Standards (nS) by the Japanese Industrial Standards Committee, which consists of many national committees in Japan and plays central role in standardisation activities in the country;
• British Standards (BS) by the BSI Group, a global independent, private, non-profit distributing company which helps organisations improve their quality and performance which has produced standards such as the ISO 9001 Quality Management System;
• Em()p~illl Stilllc’lilrrls (EN), heing standards developed by the European Committee for Standardization (CEN), European Telecommunications Standards Institute (ETSI) and the European Committee for Electrotechnical Standardization (CENELEC), together the European Standards Organisations (ESOs) which are recognised by the European Commission, the executive body ofthe European Union;
• American National Standards Institute (ANSI), a private non-profit organisation that oversees the development of voluntary consensus standards for products, services, processes, systems and personnel in the United States of America.

This is followed by third-party cel1ification obtained by our third patty suppliers that the applicable standards have been complied with, from the relevant associations as follows: • American Bureau of Shipping (ABS), a provider of marine and offshore classification services;
• TOV Rheinland (TOV), a leading provider of technical services worldwide;
• SCS S.A. (formerly known as Societe Generale de Surveillance) (SGS), a provider of industry leading inspection, verification, testing and celtification services; or
• SIRIM, a global research and standards development organisation.

 

6. BUSINESS OVERVIEW (Collt’d) As to our own brands, WAGI, VMX and Omaval which are manufactured by our OEM based in the People’s Republic of China and Taiwan, we ensure that they are produced in strict adherence with the same standards. We source for these OEM online and request from them proof of ce11ification awarded by the relevant bodies governing the required international standard(s), to asce11ain if they are able to manufacture Valves in accordance with the said standards. This is followed by a request for samples of their products. Once the sample products are tested, we conduct site visits to their factories and inspect the original ce11ificates and Supp0l1ing documents, inspect their machinery and back-end support offices and assess their quality control procedures. If these prove to be satisfactory, they are then selected to be our OEM. In addition to being discerning in our product selection, our Group also ensures that appropriate measures are undertaken to ensure that the products distributed and traded are of the best quality, by employing the following methods: (i) Visual inspection of the products prior to dispatch to our customers to ensure that the products are in good condition and are properly assembled, where our assembly service has been employed. Depending on circumstances such as the cost of replacement, products that are faulty are returned to the suppliers for replacement;
(ii) Our products are certified and tested by the manufacturers before we dispatch to our customers. On top of that, we carry out random testing on our products. Depending on the type of customers and necessity of their projects, customers sometimes request a factory/warehouse visit for on­site full inspection oftheir products;

(iii) Upon specific request from our customers, engaging third party professionals such as SGS S.A. (formerly known as Societe Generale de Surveillance) and Technischer Oberwachungsverein (TOV) to witness the testing of the products and to certify that the products are compliant with the relevant standards and specifications; and (iv) Obtaining feedback from our customers pe11aining to the quality of the products. [The rest of this page has been intentionally left blank] 6. BUSINESS OVERVIEW (Collt’d) 6.5 OUR PRINCIPAL MARKETS Our Group’s revenue segmented by types of products, brands and geographical markets are as follows: 6.5.1 Revenue Segmentation by Products The breakdown of Dancomech Engineering, Optimis and Dancomech JB’ s revenue by products for the past four (4) years (FYE 2012 to 2015) is as follows: <———————————————Audited——————————————> FYE 2012 FYE 2013 FYE 2014 FYE 2015 RM’OOO DID RM’OOO % RM’OOO DID RM’OOO DID PCE -Valves 49,412 75.36 64,833 77.93 58,916 74.58 50,015 73.28 -Others(l) 9,775 14.91 11,302 13.59 13,684 17.32 11,899 17.43 Measurement 6,379 9.73 7,055 8.48 6,401 8.10 6,339 9.29 Instmments Total 65,566 100.00 83,190 100.00 79,001 100.00 68,253 100.00 Note: (1) Others include switches, actuators, bursting discs, explosion protection devices, expansion joints, float/steam traps, orifice plates, venturi tubes, positioners, strainers, tank protection venting devices, tank ballfloats, floating roof& seals systems and MPTE products in particular Pumps. The majority type of products contributing to our revenue is attributed to PCE. During the FYE 2012, PCE contributed to a total of 90.27% of the Dancomech Engineering’s total revenue. This increased to 91.52% in FYE 2013 and further to 91.90% in FYE 2014. However, revenue contribution from PCE slightly dropped to 90.71 % in FYE 2015.
6.5.2 Revenue Segmentation by Brands The breakdown of our Group’s revenue by brands for the past four (4) years (FYE 2012 to 2015) is as follows: < ———————————————Audited—————————————–> FYE2012 RM’OOO  DID  FYE 2013 RM’OOO  DID  FYE2014 RM’OOO  DID  FYE 2015 RM’OOO  %  Third Party Brands  41,998  64.05  58,244  70.01  53,903  68.23  41,618  60.98  Own Brands (OEMil )  23,568  35.95  24,946  29.99  25,098  31.77  26,635  39.02  Total  65,566  100.00  83,190  100.00  79,001  100.00  68,253  100.00  Note:
(I) These are our own brands which are outsourced to our OEM based in the People’s Republic of China and Taiwan. 92 6. BUSINESS OVERVIEW (Collt’d) The majority type of product brands contributing to our revenue are those attributed to third party brands, which are supplied by our third party suppliers. During the FYE 2012, third paIiy brands contributed to a total of 64.05% of the Group’s total revenue. This increased to 70.01 % in FYE 2013 and fmiher to 68.23% in FYE 2014. However, revenue contribution from third party brands have decreased to 60.98% in FYE 2015. 6.5.3 Revenue Segmentation by Geographical Markets The breakdown of Dancomech Engineering, Optimis and Dancomech JB’ s revenue by geographical markets for the past four (4) years (FYE 2012 to 2015) is as follows: < —————————————-Audited————————————->  FYE 2012  FYE 2013  FYE 2014  FYE 2015  RM’OOO  0/0  RM’OOO  0/0  RM’OOO  0/0  RM’OOO  0/0  Domestic(l)  Sabah and  2,973  4.53  3,867  4.65  3,518  4.45  2,592  3.80  Sarawak  Peninsular  44,025  67.15  62,836  75.53  58,274  73.76  51,232  75.06  Malaysia  46,998  71.68  66,703  80.18  61,792  78.21  53,824  78.86  International(l)  Hall2)  2,822  4.31  3,947  4.75  5,445  6.89  (7) (3)  (0.01 )  Indonesia  14,525  22.15  11,730  14.10  10,581  13.39  13,452  19.71  Others(‘)  1,221  1.86  810  0.97  1,183  1.51  984  1.44  18,568  28.32  16,487  19.82  17,209  21.79  14,429  21.14  Total  65,566  100.00  83,190  100.00  79,001  100.00  68,253  100.00
Notes: (I) Classification ofthe domestic and international markets is based on the locality ofthe registration ofthe customers’ business.
(2) Revenue from Italy is mainly generatedFom sales made to one ofour major customers, namely Desmet Ballestra S.p.A. It is an Italian company whose end-markets are unknown, and hence the Italian market is not included in the 1MR Report. Desmet Hallestra S.p.A did not account for more than 10% of our total revenue over the last four (4) financial years. However, it has been classified as one ofour major customers because it has common shareholders with Desmet Ballestra (Malaysia) Sdn Bhd and Desmet Ballestra Oleo SRL as set out in Section 6.10. The increase in revenue contributed by Desmet Ballestra S.pA from FYE 2012 to FYE 2014 was mainly due to Desmet Ballestra S.pA’s involvement in oleochemicals and BioDiesel projects that spread over the past four (4) financial years.
(3) In FYE 2015, the total revenue generated from Italy was approximately RM19, 000. However, this amount was set off agaist a credit note issued to Desmet Ballestra S.p.A in the amount of RM25,620, which was related to an amount overchargedfor invoices issued in FYE 2014.

(-I) Sales generatedfrom other countries, including Australia, Belgium, Brunei, People’s Republic ofChina, Germany, Ghana, Hong Kong, Netherland, Norway, Philippines, South Africa, Sri Lanka, Singapore, Thailand, Uganda and United Kingdom. Our Group has predominantly served the Malaysian market, in pmiicular the Peninsular Malaysia market. The overall Malaysian market contributed approximately 78.86% to the Group’s total revenue in FYE 2015, of which 75.06% of the Group’s total revenue was attributed to the Peninsular Malaysia mmket. The remaining 21.14% of the Group’s total revenue in FYE 2015 came from our intemational market. The largest international market served by our group was Indonesia, accounting for 19.71% of the Group’s total revenue in FYE 2015. 6. BUSINESS OVERVIEW (Collt’d)
6.6 SEASONALITY Generally, there are no sharp contrasts in seasonality as our products are for general applications that are not tied to any seasonality factors.
6.7 TYPES, SOURCES AND AVAILABILITY OF SUPPLIES The breakdown of our major product types purchased by our Group for our trading and distribution activities for the FYE 2015 is as follows: .. Sources of SupplyTotal Group PurchasesFYE 2015 .–Local .. .–Import RM’OOO 0/0 RM’OOO 0/0 RM’OOO{l) Third Party Suppliers PCE and otherl2) 22,781 52.26 3,825 8.78 18,956 Measurement 5,000 11.47 236 0.54 4,764 Instruments Own Brands 15,812 36.27 –15,812 (OEMi3) Total 43,593 100.00 4,061 9.32 39,532 ..  ~ 0/0 43.48 10.93 36.27  90.68
Notes: (I) Imported goods are in respective foreign currencies of USD, Euro, GEP, RME and SGD, which are converted into the respective functional currencies on initial recognition using the exchange rates approximating to those ruling at the transaction date. (2) Include Valves, switches, actuators, bursting discs, explosion protection devices, expansion joints, float/steam traps, orifice plates, venturi tubes, positioners, strainers, tank protection venting devices, tank ball floats, floating roof& seals systems and MPTE products in particular Pumps.
(3) Thp.sl’. I1rl’. our own hrands which are outsourced to our OEM based in the People’s Republic of China and Taiwan.

We obtain our supply of products from third party suppliers. We distribute our own products, being WAGI, VMX and Omaval brands which are outsourced to our OEM. The majority of our products are sourced fi’om overseas third pmty suppliers and OEM as we only source for products locally to cater for urgent orders fi’om customers. In general, the purchase price of our products remains relatively stable as there was no significant increase in the product prices from our suppliers over the past four (4) years (FYE 2012 to 2015). In any event when there is a significant increase in raw materials prices, all market players will be similarly affected. To ensure business sustainability, we generally pass on the increased cost to our customers. We are constantly sourcing for more third party suppliers who are able to provide us with competitive pricing, timely delivery and quality products. As at LPD, we have not experience any difficulties in sourcing from our suppliers and we have not encountered any shipping disruptions or major fluctuations in the past that have affected our operations. [The rest of this page has been intentionally left blank] 94 6. BUSINESS OVERVIEW (Cont’d) 6.8 MARKETING AND DISTRIBUTION Marketing Strategies Our marketing strategies are as follows: • Positioning ourselves as an established PCE and Measurement Instruments distributor in Malaysia by acquiring the distribution rights for more internationally recognised brands;
• Encouraging repeat sales by providing after-sales services such as product testing or performing repairs on our products;
• Continuing to improve on our product range by cultivating long-term strategic pmtnerships with our foreign suppliers;
• Continuing to expand our distribution network and ensure wider market coverage through the use of direct and indirect distribution networks and at the same time cultivate long-term strategic pmtnerships with EPCC Contractors, engineering consultants, OEM, hardware retailers, equipment manufacturers and end users;
• Marketing and promoting our products directly to EPCC Contractors, engineering consultants, OEM, hardware retailers, equipment manufacturers and end users or via referrals, trade exhibitions or business directories;
• Making regular marketing visits to customers in local and overseas markets; and
• Participating in international exhibitions, such as the Malaysian Palm Oil Board International Palm Oil Congress and Exhibition and Oil and Gas Asia Exhibition, to establish business contacts and obtain sales leads internationally in the palm oil and oil and gas industries. Our Group intends to continue participating in these exhibitions.

To implement our marketing strategies, we have our own sales and business development team and support team comprising twelve (12) personnel as at LPD, including our Managing Director, Aik Swee Tong, and our Executive Director, Aik Cwo Shing. Our Group’s international marketing is led by our Managing Director, Aik Swee Tong, and our Executive Director, Aik Cwo Shing. 6.9 TECHNOLOGY AND RESEARCH AND DEVELOPMENT As we are primarily involved in the provision of PCE and Measurement Instruments, technology and research and development is not relevant in our business. As such, for the past four (4) years (FYE 2012 to 2015), we have not incurred any expenditure for research and development activity. [The rest of this page has been intentionally left blank] I Company No. 1050285-U I 6. BUSINESS OVERVIEW (Cont’d) 6.10 MAJOR CUSTOMERS Our major customers (being those who contributed 10% or more of our total revenue) for the past four (4) years (FYE 2012 to 2015) and up to LPD are as follows: Customers Countries Customer Product Approximate .. Audited Unaudited~ of Origin Type Segmentation Length of Relationship FYE 2012 FYE 2013 FYE 2014 FYE 2015 Up to LPD (years) RM’OOO 0/0 RM’OOO 0/0 RM’OOO 0/0 RM’OOO 0/0 RM’OOO 0/0 Total Revenue ofDancomech Engineering, 65,566 100.00 83,190 100.00 79,001 100.00 68,253 100.00 23,032 100.00 Optimis and Dancomech JB KNM Malaysia EPCC PCE and 11 1 -(2) 12,579 15.12 6,810 8.62 3,910 5.73 474 2.06 Process Measurement Systems Instruments Sdn Bhd (“KNM”) Desmet Malaysia EPCC PCE and 15 4,012 6.12 8,061 9.69 2,681 3.39 6,475 9.49 1,017 4.42 Ballestra Measurement (Malaysia) Instruments Sdn Bhd(J) (“Desmet”)
(3) (3)Desmet Italy EPCC PCE and 9 2,822 4.30 3,947 4.75 5,445 6.89 —-Ballestra Measurement S.p.A (1) Instruments (“Desmet S.p.A”)
Desmet Italy EPCC PCE and I ——150.02 7 0.03 Ballestra Measurement Oleo SRL Instruments (“Desmet Oleo”) (1) Subtotal 6,834 10.42 12,008 14.44 8,126 10.28 6,490 9.51 1,024 4.45 TOTAL 6,835 lQ.42 24,587 29.56 14,936 18.90 10,400 15.24 1,498 6.51 96 I Company No. l050285-U I 6. BUSINESS OVERVIEW (Cont’d) Notes: (I) Although the companies do not account for 10% or more ofthe total revenue ofDancomech Engineering, Optimis and Dancomech JB over the pastfour (4) financial years, they have common shareholders and cessation or impairment ofour business dealings with any ofthem may have a material adverse impact on our revenue and earnings.
(2) Indicates percentage ofrevenue less than 0.05%.
(3) Total revenue generated from Desmet SpA was RM3,790 during FYE 2015. However, this amount was set off agaist a credit note issued to Desmet S.p.A in the amount of RM25,620, which was related to an amount overchargeafor invoices issued in FYE 2014.

[The rest of this page has been intentionally left blank] 97 6. BUSINESS OVERVIEW (Cont’d) As at FYE 2015, we have a diverse customer base of 1,459 customers from various industries, comprising traders and distributors, EPCC Contractors, engineering consultants, OEM, hardware retailers, equipment manufacturers and end users from Main User Industries. As illustrated in the table above, our major customers for the past four (4) years (FYE 2012 to 2015) are as follows: (i) KNM KNM is a wholly-owned subsidiary of KNM Group Berhad, a public listed corporation in Malaysia. The principal activity of KNM is in the provision of design, manufacture, assembly and commissioning of process equipment, pressure vessels, heat exchangers, skid mounted assemblies, process pipe systems, storage tanks, specialised structural assemblies and module assemblies for the oil, gas and petrochemical industries. (Source: KNM Group Berhad, Annual Report 2015) The business relationship with KNM stm1ed more than 10 years ago when Dancomech Engineering supplied PCE and Measurement Instruments to their small scale projects. Dancomech Engineering has maintained long-standing business relationship with them over the years. In FYE 2012, Dancomech Engineering secured a large purchase order from KNM, who was involved in a project related to the oil and gas industry. Delivery for the said purchase order was completed over FYE 2013 and FYE 2014. The purchase order led to an increase in revenue contributed by KNM in FYE 2013, and the subsequent decline in revenue in FYE 2014 and FYE 2015 was due to completion of the said project by KNM. (ii) Desmet, Desmet S.p.A and Desmet Oleo Desmet, Desmet S.p.A and Desmet Oleo are part of Desmet Ballestra Group which is involved in the fields of engineering and supply of plants and equipment for the following industries: (i) Oil and fats and animal feed industries;
(ii) Detergents, surfactants and related chemical industries; and

(iii) Oleochemicals and biodiesel industries. (Source: Website ofDes”nlet Ballestra, http://www.desmetballestra.coml) In 2001, Dancomech Engineering had approached Desmet and sought to establish a business relationship with them. After its initial approach, Daneomcch Engineering began to 3erve Desmet and later in 2007, Desmet S.p.A in their need for PCE and Measurement Instruments, as part of their business. Our Group is proud of Dancomech Engineering’s long-standing and continuing business relationship with Desmet and Desmet S.p.A. With reference to the major customers table, the increase in revenue contributed by Desmet from FYE 2012 to FYE 2013 was mainly due to Desmet’s success in securing of a few palm oil refinery projects as well as biodiesel projects in Indonesia which were supported by Indonesian Government since year 2012. Revenue contributed by Desmet fell fi’om RM8.1 million to RM2.7 million in FYE 2014 following the completion of the said projects by Desmet. The increase in revenue contributed by Desmet S.p.A from FYE 2012 to FYE 2014 was mainly due to Desmet S.p.A’s involvement in oleochemicals and BioDiesel projects that spread over the past three (3) financial years. There were no project secured by Desmet S.p.A in FYE 2015. In FYE 2015, Dancomech Engineering secured a purchase order valued at RM15,000 from Desmet Oleo. 6. BUSINESS OVERVIEW (Cont’d) Our customers could, if they intended to, source for the products directly from our major third party suppliers. However, our customers prefer to purchase from us as it would be time-consuming and is less cost-effective if our customers buy and import the products themselves taking into consideration longer delivery time and higher priced product in low volume. We generally hold four (4) to six (6) months of stocks to maintain a sustainable level of inventories to ensure timely delivery to our customers as well as to guard against any foreseeable increased costs. The diversity in our product range is also important for our customers who generally prefer to source their supplies from a single supplier for ease and familiarity of dealings. Moreover, by sourcing products through us, our customers benefit from our pre-sales and after sales services such as consultation, customisation, and troubleshooting. Please refer to Section 6.1.1(g)(iv) for fmiher details regarding our value-added services. Given the abovementioned factors, our Group stays relevant in the distribution of major third party suppliers’ products. We have a large customer base from a diverse range of industries and there is a steady increase in our list of long standing customers. This mitigates our reliance on our major customers. Even for FYE 2013 during which our revenue increased as we managed to secure a large purchase order valued at RM14.70 million from one of our major customers namely KNM, the contribution from KNM to our total revenue for FYE 2013 was only 15.12%, and the total revenue contribution from our major customers only formed 29.56% of our total revenue. In addition, we are not heavily reliant on large purchase orders placed by our customers for their projects. Although we have secured several large purchase orders exceeding RMl.OO million per order from our customers over the past four (4) financial years, majority of our sales are not based on large purchase orders, i.e. not more than RMI.OO million per order. We have not previously experienced any material adverse impact on our business and financial performance due to the dependency on our customers. Fluctuations in revenue observed are both a function of our nature of business as well as the market we are operating in, of which celiain factors are beyond our control including but not limited to, the macroeconomic environment, market conditions, and competition. As aforementioned, for FYE 2013, our revenue increased as we managed to secure a large purchase order valued at RM14.70 million from KNM, out of which an amount of RM2.59 million was revenue for FYE 2014. However, as with any bulk purchases, we have also recorded a lower gross profit margin due to the bulk discounts given to customers. As for FYE 2014, we experienced a decline in revenue due to the completion of delivery for a large purchase order relating to the supply of Valves. Despite that, we recorded an overall growth in our revenue between the FYE 2012 and the FYE 2014 from RM65.57 million to RM79.00 million. This demonstrates our ability in sustaining the business despite the absence of large purchase orders. We have a large customer base due to the diversity in our product range and the efforts we put in establishing long term relationships with our customers. Fmiher, our Group also intends to mitigate the risk related to the absence of long term contract with customers through our continuous effort in providing quality value-added services through the technical know­how of our experienced sales team. As at LPD, we have not experienced any material impact due to the absence of long term contracts. After the Listing, we will continue to leverage and build upon our competitive advantages (as set out in Section 6.1.1(g) of the Prospectus) in order to ensure business sustainability. In addition, we will also continue to be prudent in the management of our operations. This includes, but is not limited to, eff0l1s to maintain strong cash flows, keep low overhead costs as well as on-going review of and sourcing for new vendors with more competitive pricing. In addition, in order to diversify and fUliher suppOli our revenue growth, we intend to expand to overseas markets and increase our range of product offerings. None of our Directors or substantial shareholders or their respective associates has any interest, direct or indirectly, in any of the major customers. [The rest of this page has been intentionally left blank] [company No. 1050285-U I 6. BUSINESS OVERVIEW (Cont’d) 6.11 MAJOR SUPPLIERS Our major suppliers (being those who contributed 10% or Dore ofour total purchases) for the past four (4) years from FYE 2012 to 2015 and up to LPD are as follows: Suppliers Countries Supplier Product Approximate ,. Audited ~ Unaudited of Origin Type Segmentation Length of FYE 2012 FYE 2013 FYE 2014 FYE 2015 Up to LPD Relationship RM’OOO 0/0 RM’OOO 0/0 RM’OOO % RM’OOO 0/0 RM’OOO 0/0(years) Total Purchases of Dancomech Engineering,
44,831 100.00 53,347 100.00 53,881 100.00 43,593 100.00 10,104 100.00Optimis and Dancomech JB
Neway People’s Third Ball Valves, 14 6,294 14.04 12,951 24.28 12,487 23.18 5,662 12.99 1,176 11.64 Valve Republic party Gate Valves, (Suzhou) of China Check Valves, Co., Ltd(J) Globe Valves,
Butterfly Valves and Strainer
Leser GmbH Germany Third Safety / 17 7,020 15.66 6,313 11.83 6,875 12.76 4,547 10.43 1,544 15.28 & Co. KG./ party Pressure Relief Leser LLP Valves Valveline Taiwan OEM Ball Valves, 16 6,373 14.21 5,118 9.59 4,996 9.27 4,315 9.90 1,154 11.42 Industrial Gate Valves, Co., Ltd Check Valves British United Third Recorders, 20 3,106 6.93 2,906 5.45 4,016 7.45 4,507 10.34 366 3.62 Rototherm Kingdom party Pressure Co. Ltd Transmitters and Gauges TOTAL 22,793 50.84 27,288 51.15 28,374 52.66 19,031 43.66 4,240 41.96 100 I Company No. 1050285-UJ 6. BUSINESS OVERVIEW (Cont’d) Note: (I) In 2001, Dancomech Engineering was appointed as an authorised distributor for Malaysia by Neway Valve (Suzhou) Co. Ltd. from the People’s Republic ofChina to supply butterfly valves, gate valves, check valves, globe valve~ and ball valves under the Neway brand. Since the setting up ofNeway Valve (Suzhou) Co. Ltd. ‘s regional sales office, Neway Valve (Singapore) Pte. Ltd. in 2013 which is bcsed in Singapore and covers the region ofSouth-East Asia (including Australia, New Zealand and India), Dancomech’s latest renewed appointment as an authorised distributor ofthe said valves is granted by Neway Valve (Singapore) Pte. Ltd. Since July 2014, all orders for Neway products by Dancomech are placed with Neway Valve (Singapore) Pte. Ltd. Prior to July 2014, its orders were placed with Neway Valve (Suzhou) Co. Ltd. [The rest of this page has been intentionally left blank] 101 6. BUSINESS OVERVIEW (Collt’d) Third party supplier Details of our distributorship agreements with our suppliers (including our major third party suppliers) are set out in Section 6.12. For FYE 2013, purchases fi’om Neway Valve (Suzhou) Co., Ltd. (“Neway”) increased mainly due to an increase in sales to Desmet S.p.A and KNM Process Systems Sdn Bhd. Neway is able to supply an extensive range of products as compared to other generic manufacturers. Based on the specifications and requirements from Desmet S.p.A and KNM Process Systems Sdn Bhd, Dancomech sourced the products fi’om Neway. For FYE 2014, purchases from Neway by Dancomech declined slightly by RM464,000 due to the completion of delivery for a large purchase order. For FYE 2015, purchases from Neway by Dancomech declined by RM6.83 million due to lower sales volume from the customers involved in the oil and gas industry and the palm oil and oleochemicals industry. Higher purchases from Leser LLP for the FYE 2012 were mainly due to new purchase orders secured fi’om four (4) EPCC Contractors. However, the demand for Leser reduced for the FYE 2013, mainly due to the completion of delivery for four (4) purchase orders. For the FYE 2014, purchases from Leser LLP increased slightly by RM562,000 due to the demand from an Indonesian customer to build its own utility piping and storage tank farm. However, the purchases from Leser LLP declined by RM2.33 million in FYE 2015 mainly due to end of construction of the utility piping and storage tank farm. The purchases from British Rototherm Co. Ltd was on the increasing trend for FYE 2012 to FYE 2015 save for FYE 2013. The purchases for FYE 2015 increased by RM491,000 due to widening of Measurement Instruments product range by Dancomech. We have not previously experienced any material adverse impact on our business and financial perfOimance due to the dependency on these major third party suppliers. While there can be no assurance that any of the major third party suppliers will continue the business relationship indefinitely, we have no reason to believe that they will not do so in the foreseeable future as we have established long standing relationships with Neway and Leser GmbH & Co. KG /Leser LLP for 14 years and 17 years, respectively. In addition, the Valves supplied by our major third party suppliers are generally generic in nature. There are instances where Valves that conform to certain specifications may be required by customers who are involved in certain projects in the oil and gas industry. Only for those instances where the specifications and requirements of the customers could not be met by other suppliers who supply generic products, Dancomech would have dependency towards certain third party suppliers. Where our customers do not require specific Valves fi’om certain suppliers, the Valves can be sourced fi’om other local or overseas suppliers should the need arise. As at LPD, we also source Valves from other suppliers as disclosed in Section 6.1.1 (c). We also sell our own products through our own brands, being WAGI, VMX and Omaval brands which are outsourced to our OEM. Valveline Industrial Co., Ltd (“Valveline”) is one of our OEM for our proprietary brands. Purchases from Valveline decreased in FYE 2012 to FYE 2014 due to continuous sourcing of new OEM, which provide competitive pricing without compromising quality. Our Group gradually reduced the purchases fi’om Valveline to another new OEM who offered more competitive pricing. For FYE 2014 and FYE 2015, purchases fi’om Valveline declined slightly by RM 122,000 and RM681,000 due to the Group continued purchases from other OEM who were offering more competitive pricing. 6. BUSINESS OVERVIEW (COIlI’d) Apart from Valveline who is our major OEM, we also have a pool of twenty four (24) OEM based in the People’s Republic of China and Taiwan who we have identified as reliable and have met the requirements from the governing bodies for standards as described in Section 6.4. The pool of twenty four (24) OEM are divided into different groups by categories of products. Within each category, the OEM possess capabilities to produce the said category of product and we place an order with the OEM within the group who provides the most favourable quote at that time. Accordingly, any disruption to our business relationship with Valveline would not affect our business and financial performance. In addition, the products manufactured by our OEM are generic in nature and can be sourced from other OEM should the need arises. None of our Directors or substantial shareholders or their respective associates has any interest, direct or indirectly, in any of the major suppliers. [The rest of this page has been intentionally left blank] I Company No.1 05028W] 6. BUSINESS OVERVIEW (Cont’d) 6.12 DISTRIBUTORSHIP AGREEMENTS Dancomech Engineering has been granted exclusive or sole distributorship rights by our suppliers as detailed below: No.  Brand OwnerlPrincipal  Our StatuslRights  Territory  Effective Date/ Date of Expiry  Salient Terms  1.  Korea Steel Power Corporation (representative of Tanktech Co. Ltd.) (“Tanktech”)  Exclusive Representative  Malaysia and Indonesia  3 January 2007 This period shall be extended automatically every two (2) years  (a) Dancomech Engineering shall not make any sales outside Malaysia without the prior written consent of the Brand OwnerlPrincipal. (b) Dancomech Engineering shall not represent or promote products or services that are in competition with or having the same or similar function of any equipment manufactured by the Brand Owner/Principal.  (c) This Agreement can be terminated:  (i) immediately by written notice by either party should the other become insolvent, bankrupt or receiver appointed; or  (ii) by written notice if Dancomech Engineering fails to remedy a substantial breach of this Agreement within 60 days of receipt of a written notice specifying details of that breach.  2.  Ayvaz A.S.  Sole Distri:JUtor  Malaysia  3 June2014  Nil  The agreement is valid until 2 June 2016 and thereafter shall be automatically renewed for a period of one (l) year unless there is a written notice from either party of not less than sixty (60) days prior to the expiration date
104 ~mpany No. 10502§ 6. BUSINESS OVERVIEW (Cont’d) No.  Brand OwnerfPrincipal  Our StatuslRights  Territory  Effective Date/ Date of Expiry  Salient Terms  3.  REMBE GmbH  Sole Agent  Malaysia  1 January 2015  Nil  The agreement is valid until 31 December 2015 and shall be automatically extended for an additional one (l) year unless there is a written notice from either party of not less than sixty (60) days prior to the expiration date  4.  Korea Float Co Ltd  Exclusive Agent  Malaysia  1 August 2014  Nil  The agreement is valid until 31 July 2016(1)  5.  DHC Co Ltd  Sole distributor  Malaysia and Indonesia  16 August 2012 The agreement valid until 15 August 2014 and thereafter shall be automatically renewed for a period of two (2) years unless there is a written notice from either party of not less than sixty (60) days prior to expiration date  Nil  6.  Huaian Hardware Co Ltd  Sole Agent  Malaysia  22 April 2016  Nil  The agreement is valid until 21 April 2018
[The rest of this page has been intentionally left blank] 105 I Company No. 10S028S=u] 6. BUSINESS OVERVIEW (Cont’d) INO .  Brand OwnerlPrincipal  Our StatusJRights  Territory  Effective Expiry  Date/  Date  of  Salient Terms  7.  KSB  Malaysia  Pumps  &  Exclusive  Peninsular  21 October 2015  (a)  The Brand Owner/Principal confers upon  Valves Sdn Bhd  AgentlDis:ributor  Malaysia  Dancomech  Engineering  an  exclusive  The agreement is valid until 20  right to distribute their products set out in  October  2017  and  thereafter  the  Agreement  (“Products”)  in  the  shall  be  automatically  renewed  applications in palm oil mill (“Segment”)  for  further  periods  of  one  (I)  in Peninsular Malaysia (“Territory”).  year each unless terminated by  either party by giving at least six  (b)  Dancomech  Engineering  shall  refrain  (6) months’ prior written notice  from:  before the expiration date.  (i)  active sales of the Products outside  the Segment  as  well  as  outside the  Territory; or  (ii) seeking  customers  for the Products,  establishing  any  branch  and  from  maintaining  any  distribution  depot  outside the Territory. This shall also  apply  to  customers  in  the Territory  which  as  far  as  Dancomech  Engineering  knows  or  can  be  expected to know would export the  Products  to  countries  outside  the  Territory.  (c)  During the term of this Agreement and  for  a  period  of two  (2)  years  after  its  termination,  Dancomech  Engineering  undertakes  to  neither  directly  or  indirectly  market  or  to  promote  the  distribution  and/or  marketing  of  the  Products and any products that are similar  to  the Products from any other supplier  than the Brand Owner/Principal or KSB  Aktiengesellschaft  or  any  affiliate  that  might directly or indirectly compete with  the Products without the written consent  of the Brand OwnerlPrincipal.
106
I Company No. 1050285-U I 6. BUSINESS OVERVIEW (Cont’d) No.  Brand OwnerlPrincipal  Our StatuslRights  Territory  Effective Date/ Date of Salient Terms Expiry (d) Either party may terminate this Agreement at any time prior to its expiration: (i) if the other party is in material breach of this Agreement, and such breach is not remedied within sixty (60) days of written notice to the breaching party; (ii) if the other party becomes bankrupt, or is subject of proceeding for liquidation or dissolution, or ceases to carryon business or become unable to pay its debts as they become due; (iii) if any government authority having authority over either party requires any provision of this Agreement to be revised in such a way as to cause significant adverse consequences to such party; or (iv)in the case of changes in the group of shareholders of Dancomech Engineering and/or its organisation structure, or in the senior management of Dancomech Engineering without prior consent by the Brand Owner/Principal. (e) The Brand Owner/Principal may terminate this Agreement if Dancomech Engineering does not meet the agreed sales target for any specific year.
Note: (I) This Distributorship Agreement is pending renewal as at LPD. 107 I Company No.1 050285-U I 6. BUSINESS OVERVIEW (Cont’d) Dancomech Engineering has been granted distriJutorship rights by our suppliers as detailed below: No.  Brand  Our StatusfRights  Territory  Effective Date/ Date of Expiry  Salient Terms  OwnerlPrincipal  1.  Neway Valve  Authorised Distributor  West  1 January 2016  Nil  (Singapore) Pte Ltd  for oil & gas save for  Malaysia  Petroliam Nasional  The agreement is valid until 31 December 2017  Berhad (“Petronas”), for  whom Neway Valve  (Singapore) Pte Ltd has  its own distributors.  Dancomech Engineering  is not an authorised  distributor for Petronas  as it does not possess  the necessary  Bumiputera equity  requirements.  2.  Neway Valve  Authorised Reseller  Sumatera,  I January 2016  Nil  (Singapore) Pte Ltd  Indonesia.(1)  The agreement is valid until 31 December 2017  3.  British Rototherm Co.  Authorised Distributor  Malaysia and  1 March 2011  Nil  Ltd  Indonesia  The expiry date is not specified(2)
[The rest of this page has been intentionally left blank1 108 I Company No. 105028~ 6. BUSINESS OVERVIEW (Cont’d) No. 4.  Brand OwnerlPrincipal RITAG Ritterhuder Armaturen GmbH &Co  Our StatuslRights Distributor  Territory Malaysia  Effective Date/ Date of Expiry 29 August 2014 The agreement is valid until 28 August 2016 and thereafter shall be automatically renewed for a period of one (I) year unless there is a written notice from either party of not less than ninety (90) days prior to expiration date  Salient Terms Nil  5.  LESER GmbH & Co. KG  Distributor  Malaysia  14 December 20 I0  Nil  The expiry date is not specified(2)  6.  Power-Genex Ltd  Sales & Service Distributor  Malaysia  21 August 2014 The agreement is valid until 21 August 2016(3)  Nil  7.  Festo Sdn Bhd  Agent  17 September 2014  Nil  The agreement is valid until 18 August 2016(3)  8.  Crane Australia Pty Ltd  Authorisec Distributor  Malaysia  22 April20I3 The expiry date is not specified(2)  Nil  9.  Eurotec Antriebszubehor GmbH  Authorised Seller  Malaysia  21 November 2005 The expiry date is not specified(2)  Nil  10.  Kevin Steel Corporation Distributorship  Authorised Agent  – I September 2015 This agreement is valid until I September 2017  Nil
Notes: (1) Dancomech Engineering is only authorised to sell to a specific entity in Sumatera, Indonesia.
(2) Where the Date ofExpiry ofthe period ofthe distribution rights is not specified, Section 159 ofthe Contracts Act, 1950 provides that a party may terminate a contract where a reasonable notice period has been given by the terminating party.
(3) This Distributorship Agreement is pending renewal as at LPD.

109 [COillpany No. 10502~ 6. BUSINESS OVERVIEW (Cont’d) Optimis has been granted distributorship rights by a supplier as detailed below: No.  Brand OwnerlPrincipal  Our StatuslRights  Territory  Effective Date/ Date of Expiry  Salient Terms  I.  Norgren Sdn Bhd  Authorised  2 January 2009  Nil  Distributor  Valid until terminated by either party
The Group has not encountered any issues with its brand owners/principals in the past. [The rest of this page has been intentionally left blank] 110 6. BUSINESS OVERVIEW (Col1t’d) 6.13 OPERATING FACILITIES, MATERIAL EQUIPMENT AND STORAGE CAPACITY Our Group is principally involved in the trading and distribution of PCE and Measurement Instruments. As such, we do not have any operating facilities that relate to manufacturing. Our only operating facility is the testing lab which has the capacity to conduct safety valves testing and repair services of various types of safety valves. As at LPD, we possess no material equipment. We possess a warehouse which is located in our current headquarters at Jalan Pelukis, the details of which may be found in Section 6.17. Our warehouse has an available floor area of 40,632 sq. ft. for storage capacity. As at LPD, an estimated area of 30,000 sq. ft is utilised as storage for our stocks. We have taken all reasonable steps to ensure that all our key assets are adequately covered by insurance. As at LPD, our operations have not been affected by any event of fire, flood, loss, damage, burglary or accident. [The rest ofthis page has been intentionally left blank} I Company No. 1050285-U I 6. BUSINESS OVERVIEW (Cont’d) 6.14 MAJOR LICENCES, PERMITS AND REGISTRATIONS The major licences issued to our Group as at LPD are summarised as below:
Company  Issuing  Type of Licences  Issue Date / Expiry Date  Salient Conditions  Status of  Authority  Compliance  Dancomech  Majlis  Trading,  office,  warehouse  2 June 2016 / 30 June 2017  Nil  Not  Engineering  Bandaraya  licence for sales or service and  Applicable  Shah Alam  storage and signboard licence  Dancomech  Majlis  Trading, office  28 October 2015 / 31 October 2016  Nil  Not  JB  Bandaraya  Applicable  Shah Alam  Optimis  Majlis  Trading, office  13 October 2015 / 31 October 2016  Nil  Not  Bandaraya  Applicable  Shah Alam
[Th~ rest of this page has been intentionally left blank] 112 I Company No.1 050285-U I 6. BUSINESS OVERVIEW (Cont’d) 6.15 INTELLECTUAL PROPERTY RIGHTS All of our trademarks have been duly registered with the Intellectual Property Corporation of Malaysia, details as follows:
Trade Mark LogolWords  Registrant  Class  Description of Class Heading of  Trademark  Status of  Validity  No.  Trade Mark  No.  Application  Period  Dancomech (Logo) ~~ @~~ VMX (Word) OMAVAL (Word) WAGI (Word)  Dancomech Engineering Danccmech Engineering Dancomech Engineering Dancomech Engineering  6 6 6 6  Unwrought and partly wrought common metals and their alloys; anchors, ancils, bells, rolled and cast building materials; rails and other metallic materials for railway tracks; chains (except driving chains for vehicles); cables and wires (non­electric); locksmiths’ work; metallic pipes and tubesl steel balls; bars of metals; chrome iron; linkages of metal (non-electric); roofing of metal; tanks of metal; valves; valves of metal (other than parts of machine); butterfly valves of metal (other than parts of machine); nails and screws; other goods in non­precious metal not included in other classes; ores; all included in Class 6. Metal valves, metal valves made of cast iron, carbon steel, stainless steel; all included in Class 6 Valves and ball valves all made of metal, cast iron or stainless steel, not being parts of machines; all included in Class 6 Carbon steel, stainless steel, cast iron, metal valves; all included in Class 6  2014005433 08011618 09008912 07009654  Registered Registered Registered Registered  16 May 2014 to 16 May 2024 16 June 2008 to 16 June 2018 1 June 2009 to 1 June 2019 25 May 2007 to 25 May 2017
113 6. BUSINESS OVERVIEW (Collt’d) As at LPD, we are not aware of: (a) any complaints or infringements in relation to our registered trademarks; or
(b) any known issues that may impact the renewal of our registered trademarks.

6.16 DEPENDENCY ON PATENTS, INTELLECTUAL PROPERTY RIGHTS, LICENCES, INDUSTRIAL, COMMERCIAL OR FINANCIAL CONTRACTS 6.16.1 Dependency on Intellectual Property Rights Save as disclosed in Section 6.15, our Group is not dependent on any patents or intellectual property rights for our business operations. 6.16.2 Dependency on Major Licences Save as disclosed in Section 6.14, our Group is not dependent on any major licences, permits or registrations for our business operations. 6.16.3 Dependency on Industrial, Commercial and Financial Contracts Save as disclosed in Section 6.12, our Group is not dependent on any material contracts or agreements including industrial, commercial and financial contracts, which are material to our business or profitability. Save and except for the distributorship agreements with Neway and Leser (dependency on the aforesaid suppliers has been disclosed as a risk factor in Section 4.1.2), the dependency on the other distributorship agreements set out in Section 6.12 does not constitute a risk factor for the Listing as the Group would be able to source for a new supplier in the event there is any termination of, withdrawal of or disruption to our business relationships with any of the suppliers. [The rest of this page has been intentionally left blank] I Company No.1 050285-U I 6. BUSINESS OVERVIEW (Cont’d) 6.17  PROPERTY, REGULATORY OPERATIONS  REQUIREMENTS  AND  ENVIRONMENTAL  ISSUE  AND  INTERRUPTIONS  TO  BUSINESS  AND  6.17.1  Own Properties  As at LPD, our Group owns the following proJ=erty:
Registered/  Title/Address  Description/ Existing Use  Encumbrances  Tenure  Land / Built -up  Audited  Issuance Date of  Beneficial  Areas  NBV as at 31  Certificate of  Owner  sq. ft.  December  Completion and  2015  Compliance  RM’OOO  Dancomech Engineering  Title: HS(D) No. 102177 PT 15990 Mukim Damansara Daerah Petaling Negeri Selangor Address: Lot 19 Ja1an Pe1ukis U1I46 Seksyen U1 40150 Shah Alam  Description: Industrial land, upon which a dual access, three-storey office cum warehouse is erected. Existing Use: Ground Floor: The office of Optimis and the warehouse. There is also a reception area and a small office for future expansion.  to Bank Charged Public Berhad (Company No. 6463-H) of BI­B4 Jalan SS 15/4D Subang Jaya, Petaling Jaya, 47500 Selangor  Freehold  Land Area: 79,523.80 sq. ft. Built-up Area: 97,679.17 sq. ft. Ground Floor: 42,883.00 sq. ft. First Floor: 11,691.17 sq. ft. Second Floor:  Land: 11,915 Building: 12,393 Total NBV for Land and Building: 24,308  14 February 2014  Selangor Darul Ehsan  The office and the warehouse of Dancomech Group is accessible vide the Ground Floor (“Dancomech’s Access”).  43, I05.00 sq. ft.  First Floor:  The office of Dancomech Engineering, Dancomech JB and Dancomech Eoldings Berhad.
115 I Company No. 1050285-U I 6. BUSINESS OVERVIEW (Cont’d) Registered/  Title/Address  Description/ Existing Use  Encumbrances  Tenure  Land / Built -up  Audited  Issuance Date of  Beneficial  Areas  NBV as at 31  Certificate of  Owner  sq. ft.  December  Completion and  2015  Compliance  RM’OOO  Second Floor;  37,929.00 sq. ft. of the space is  rented to Aioan Motor Sdn Bhd  by Dancomech Engineering as a  car showroom and sales and  service centre from 1 October 2014  to 30 September 2017. There is a  tenant’s access whereby the rented  area is accessible separately at the  posterior of the building, vide a  main road which is located on  higher ground.  The remainder 5,176.00 sq. ft. is  vacant for future expansion and is  accessible vide Dancomech’s  Access.
[The rest of this page has been intentionally left blank] 116 6. BUSINESS OVERVIEW (Cont’d) 6.17.2 Rented Properties As at LPD, a summary of the properties rented by our Group is as follows:
No.  Tenant  Landlord  Postal Address Description No. 19, Jalan A three-storey Pelukis U 1/46, office cum Temasya Industrial warehouse. Park, 40150 Shah Optimis is Alam, Selangor renting an Darul Ehsan office on the ground floor.  1.  Optimis  Dancomech Engineering
Rental Area  Floor  Tenure Tenancy  of  721.182 sq. ft.  1 August 2014 to 31 July 2016 (I)
Note: (I) Further details on the tenancy agreement are set out in Section 10.1.1. The total rental paid by our Group during the FYE 2015 is approximately RM17,500, which was for Dancomech JB’s previous office in Johor. The tenancy agreement was terminated on 30 June 2015 and hence no rental has been paid by our Group since the termination of the tenancy agreement. Further details regarding the termination of the tenancy agreement of Dancomech JB’s previous office are set out in Section 3.6(ii)(a). 6.17.3 Regulatory Requirements and Environmental Issue 6.17.3.1 Regulatory Requirements Save as disclosed in Section 6.14 and below, there is no other regulatory requirement (including land rules and building regulations) which may materially affect our Group’s operations and/or utilisation of assets: (a) ImporUExport
Although we are not required to obtain imp0l1/export licences for the imp0l1ation/exp0l1ation of our products, we are required to comply with the Customs Act 1967 and Customs Regulations 1977 on matters such as filing of the neceSSaIy forms for the declaration of dutiable goods and payment of duties.
(b) Occupational Safety and Health

Pursuant to the Occupational Safety and Health Act 1994, we are required to ensure, so far as practicable, the safety and welfare at work of our employees. Our duty includes among others, the following: (i) provision and maintenance of plant and systems of work that are, so far as is practicable, safe and without risks to health;
(ii) making of arrangements for ensuring, so far as is practicable, safety and absence of risks to health in connection with the use or operation, handling, storage and transpOli of plant and substances;

6. BUSINESS OVERVIEW (Conl’d) (iii) provision of such information, instruction, training and supervision as is necessary to ensure, so far as is practicable, the safety and health at work of our employees; (iv) so far as is practicable, maintenance of the place of work in a condition that is safe and without risks to health and the provision and maintenance of the means of access to and egress from it that are safe and without such risks; and
(v) provision and maintenance of a working environment for our employees that is, so far as is practicable, safe, without risks to health, and adequate as regards facilities for their welfare at work.

As at LPD, we are in compliance in respect of all regulatory requirements set out above. 6.17.3.2 Environmental Issue There is no enviromnental issue which may materially affect our Group’s operations and/or utilisation of assets. 6.17.4 Interruptions to Business and Operations We have not experienced any material interruption in business which had a significant effect on our operations during the past twelve (12) months preceding the LPD. [The rest of this page has been intentionally left blank] 6. BUSINESS OVERVIEW (Collt’d) 6.18 FUTURE PLANS, STRATEGIES AND PROSPECTS 6.18.1 Future Plans and Strategies The future plans of our Group are focused in the following key areas as depicted below: Future plans of our Group I I I I Setting up of Increase in product Market expansion Upgrade of testing lab assembly line range Purchase and upgrade Purchase of assemblyEast Malaysia of laboratory testing ~ ‘-­-tools and machineries equipment
(i) Market Expansion Sabah and Sarawak We have managed to build a network of distributors in Sabah and Sarawak who contributed steadily to our sales. Sales contribution from Sabah and Sarawak clients in FYE 2015 amounts to approximately RM2.59 million. Our distribution network is described in Section 6.1.1 (d). We intend to set up offices cum stores in Lahad Datu, Sabah and Bintulu, Sarawak within twenty four (24) months after our Listing, to expand into the palm oil and oleochemicals and oil and gas and petrochemical industries in Sabah and Sarawak. Bintulu For Bintulu, it is the fourth largest town in Sarawak, Malaysia and is located strategically in between the towns ofMiri and Sibu. It is easily accessible via air and sea from Kuala Lumpur. Bintulu is an industrial centre. Its port is located at the east of the main town which hosts the Petronas Liquified Natural Gas (LNG) complex together with other strategic economic establishments as follows: (a) Malaysia Liquefied Natural Gas Plant (MLNG Plant) Malaysia LNG Sdn Bhd was incorporated on 4 June 1978 to construct and operate the first liquefied natural gas (LNG) plant. The principal activities of the MLNG Plant is to acquire natural gas from gas suppliers such as Petroliam Nasional Berhad, Petronas Carigali Sdn Bhd and Sarawak Shell Berhad, process natural gas into LNG, and secure buyers for MLNG, MLNG Dua and MLNG Tiga. The MLNG project has contributed significantly to the socio-economic growth and industrial development of Sarawak. (Source: www.bda.gov.lllV) 6. BUSINESS OVERVIEW (Coni’d) (b) Asean Bintulu Fertilizer (ABF) Plant The ABF plant is a joint venture between five (5) ASEAN countries, namely Malaysia, Thailand, Indonesia, Philippines and Singapore. The anhydrous ammonia and granular urea plant is operated by Asean Bintulu Fertilizer Sdn Bhd. The company commenced its commercial operations in 1985. (Source: www.bda.gov.mv) (c) Shell Middle Distillate Synthesis Plant Shell MDS (Malaysia) Sdn Bhd owns and operates the SMDS plant, a commercial gas to liquids plant in Bintulu. The plant converts natural gas into high quality synthetic oil products and specialty chemicals which are paraffinic and colourless. The plant started operations in 1993. (Source: www.bdo.gov.mv) (d) Sarawak Corridor of Renewable Energy (SCORE) SCORE is a new development corridor in central of Sarawak. SCORE was established in 2008 and covers the areas of Tanjung Manis, Samalaju, Mukah, Baram and Tunoh. The 2008 to 2030 development plan for SCORE focuses on developing the energy sector and targets ten (10) high impact priority industries, being the aluminium, glass, steel, oil-based, palm oil, fishing and aquaculture, livestock, timber-based, marine and tourism industries. (Source: WH’W. recodo. com. my) The bulk of the investments in SCORE are in the aluminium, steel and oil and gas sectors. In November 2014, Sarawak State Planning Unit Director Datuk Ismawi Ismuni announced that SCORE has secured nineteen (19) approved projects with a total estimated investment of RM30A billion, mainly in energy-intensive operations in Bintulu’s Samalaju Industrial Park, one of SCORE’s growth areas. (Source: yvww.mida.gov.mv) Lahad Datu As for Lahad Datu, it is located strategically between the towns of Tawau and Sandakan. Sabah has two (2) Palm Oil Industrial Clusters (pore) which are located in Lahad Datu and Sandakan as part of the Sabah Development Corridor. porc Lahad Datu is the first dedicated palm oil industrial cluster in Malaysia and has received encouraging response from investors since its inception and has two biodiesel plants in operation. porc Lahad Datu has attracted RM4.5 billion in investments. porc investors include those in the industries of biodiesel, palm oil and palm kernel milling, logistics and godowns, property development, manufacturing fertilisers and its supporting services. (Source: wH’w.mvcorridor.malal’sia.gov.mv) [The rest of this page has been intentionally left blank] 6. BUSINESS OVERVIEW (Collt’d) Sipitang Oil & Gas Industrial Park (SOGIP) is managed by the Sipitang Oil and Gas Development Corporation. It serves as a new focus point for oil and gas investment within the Sabah, Brunei and Labuan economic centres. The availability of oil and natural gas found off the shores of Sabah allows for development of industries that utilise oil and natural gas, especially the petrochemical industry. Petronas Chemicals Group Berhad will be developing the Sabah Ammonia Urea plant (SAMUR) in SOGIP, estimated to cost USD 1.5 billion. (Source: 11’Ww.l11vcorridor.l11alavsia.gol’. mv) As at LPD, we have yet to identify a suitable location within Lahad Datu, Sabah and within Bintulu, Sarawak for our Sabah and Sarawak offices cum stores. We estimate the cost of market expansion to be RM2.00 million for each location, which will be funded through our IPO proceeds. Upon completion, our Group will be located closer to our customers, which will enable us to better understand our customers’ needs. Our Group will also be able to improve our distribution channels as well as serve our customers better. (ii) Upgrade of testing lab Cunently, there is a testing lab facility in Dancomech. At this juncture, our Group only uses the testing lab facility for Leser brand safety valves testing purposes. Our testing lab facility complements our trading operations. In the absence of a testing lab facility, we will need to retum products (which are not defective) for further checking and testing if our customers require that the safety valves be set at a different pressure. By conducting testing and checking in our testing lab facility, cost and time is minimised in the following manner: (a) reduces the time required given the testing and checking can be done in Malaysia rather than in our supplier’s testing labs which are situated in Germany and Singapore; and
(b) reduces the need for keeping safety valves of various pressure settings and therefore reducing our inventory cost. With the testing lab facility, the pressure setting of the safety valve may be adjusted subject to the pressure limits ofthe safety valve in question.

As part of our future plans, we intend to upgrade our testing lab facility which is expected to be completed within twelve (12) months after our Listing. The purpose ofthis testing lab facility is to enable our Group to conduct safety valves testing and perfonll repair services on our products upon request by our customers. With the upgrading of our existing testing lab facility, we intend to become a Leser Authorised Repair Center CLARC”) subject to Leser pre-qualification criteria. Moving forward, our Group also aspires to utilise our testing lab facility to test and service Valves of various brands. This competitive advantage would complement our trading operations as it would enhance our after sales service and support to the customers. To perfOim these upgrades, we need to upgrade and purchase new additional fittings, tools and machineries. Should the upgrades require installation of an unfired pressure vessel, the vessel would require a Celiificate of Fitness under section 19 of the Factories and Machinery Act 1967 from the DepaJiment of Health and Safety in the Ministry ofHuman Resource ofthe govemment of Malaysia. The cost of the upgrades is estimated to be approximately RMO.50 million, which will be funded entirely via our IPO proceeds. 6. BUSINESS OVERVIEW (Cont’d) (iii) Setting up of assembly line In line with our future business plans, we also plan to expand the business by setting up a stainless steel flexible hose assembly line within twelve (12) months after our Listing. The assembly line will be located at our premises, and will have a floor area of approximately 970 sq. ft. of our existing factory floor. The assembly line will be equipped with several tools and machineries, including hose cutter machine, welding machine, threading machine, heavy duty drill machine and welding rod. The welding machine does not require employment of a certified welder, although we intend to employ a certified welder to operate the same. The cost of setting up and getting the assembly line into operation is estimated to be approximately RMO.50 million, which will be funded through our IPO proceeds. Upon completion, this will enable us to customise our stainless steel flexible hose to meet the requirements of our customers mainly in palm oil refineries. (iv) Increase in product range As at LPD, we carry a total of twelve (12) product categories as part of our PCE inventory and five (5) product categories as part of our Measurement Instruments inventOly. We believe there is a good opportunity for growth through expanding the range of products we offer to our customer base. We intend to increase in product range within 12 months from the Listing date. We can do this either by: (a) acquiring distribution rights for additional products from our existing suppliers;
(b) acquiring distribution rights from new suppliers; and
(c) developing and selling new products under our own brands.

We believe that we are well-placed to increase the range of products we sell by acquiring distribution rights for additional products from our existing suppliers based on our established relationship and our established track record. On the plan to expand the range of our products through the acquisition of distribution rights from new suppliers, we believe there is a good opportunity for such business strategy with our established track record in the business of trading and distributing PCE and Measurement Instruments over the last twenty six (26) years. Our diverse customer base of 1,459 customers from various industries, comprising traders and distributors, EPCC Contractors, engineering consultants, OEM, hardware retailers, equipment manufacturers and end users as at FYE 2015 together with the infrastructure in place including warehousing facilities provides assurance to potential suppliers in terms of reliability of orders, supply and distribution of various types of PCE and Measurement Instruments. As at the LPD, we have expanded our product range with the supply of MPTE products in particular Pumps to the palm oil and oleochemicals industry subsequent to the acquisition of distribution right from KSB Malaysia Pumps & Valves Sdn Bhd on 21 October 2015. Pump is a device used to move fluids by mechanical action. Together with the said distribution right, we have been granted seven (7) exclusive or sole distributorship rights and eleven (11) distributorship rights by our suppliers in respect of certain products as at the LPD. We see the opportunity to offer our customer base a wider range of products by developing and selling new products under our own brands as the revenue contributed by the sales of products under our own brands have been increasing steadily for the past four (4) FYEs from approximately RM23.57 million in FYE 2012 to RM26.64 million in FYE 2015. The manufacturing of our own brand products are outsourced to our OEM, which are based in the People’s Republic of China and Taiwan. 6. BUSINESS OVERVIEW (Collt’d) 6.18.2 Prospects Our Group operates within the PCE and Measurement Instruments market in Malaysia, with much of its prospect hinging upon the investment decision of market players within the end user markets, among others, the oil and gas industry, the palm oil industry and the water services industry. As the investment decisions are often determined by business profitability, any prolonged unfavourable pricing trend of hydrocarbon and crude palm oil would result in cuts or deferments of investment within the oil and gas and palm oil industries thus adversely affect the demand for our products. The oil and gas industry has witnessed a declining trend of crude oil prices since June 2014. The downward pricing trend persisted in 2015 where crude oil prices dropped to an average of USD50.8 per banel in 2015. Lower oil prices adversely affect the business profitability of oil companies thus forcing them to reassess their development projects and focus on driving prudent cost management. Moreover, PETRONAS has announced a cut in its operational expenditure and capital expenditure for 2016 by between RM 15 billion to RM20 billlion. The reduction is also part of PETRONAS’ move to reduce the capital expenditure and operational expenditure by RM50 billion over the next four (4) years. Accordingly, our Group anticipates a soften demand from the oil and gas industry in the medium term. Notwithstanding the current bearish scenario, crude oil prices could rebound and move higher if any of demand and supply factors begin to reverse. As such, we believe that the demand for our products would increase should oil prices rebound and move higher. (Source: IMR Report) Likewise in the palm oil industry, crude palm oil prices generally trended downward in 2015. As the declining pricing trend would exert pressure on business profitability of palm oil industry, we anticipate a lower demand for our products from the said industry in the ShOlt term as the palm oil players cut or defer their investment decisions for capacity expansion and equipment maintenance and upgrade. Nonetheless, crude palm oil prices began to exhibit signs of recovery from January to April 2016 and is expected to continue to gain growth momentum moving forward. We expect the demand for PCE and Measurement Instruments to improve in tandem with improving crude palm oil prices. In addition, we also believe the performance of palm oil industry would improve in the medium to long term as the underlying demand for palm oil in the global market remains strong in relation to population growth. The United Nations Food and Agricultural Organisation has projected the world population to grow to 9.73 billion by 2050 from 7.35 billion in 2015. In addition, the targeted introduction of biodiesel BI0 involving the blending of 10% of palm oil with 90% of petroleum diesel is set to fmther increase the domestic demand for palm oil in the long term. Given the prospect of palm oil industry, we expect the demand for our products remain supported in the short term, stemming from the replacement of faulty equipment; and favourable in the medium to long term, attributed to the underlying demand for palm oil that would encourage more investment in the palm oil industry. (Source: IMR Report) On top of that, our Group believes that demand from the water services industry remains strong amid growing demand in relation to the population growth to reach 38.6 million by 2040 from an estimated size of 30.5 million in 2013. More importantly, the lower reserve margin of water treatment plants at 15.7% in 2014 as compared to 16.1 % in 2012 highlighted the need for expansion in plant capacities to meet growing demand. Furthermore, the water services industry continued to receive attention from the government. As outlined in the 11 MP, the Malaysian government is committed to continue investing in the expansion of water and sewerage networks and treatment capacity. Accordingly, demand for PCE and Measurement Instruments would increase. (Source: IMR Report) 6. BUSINESS OVERVIEW (Collt’d) COlTespondingly, growing trend for industrial automation and the reforcement of environmental protection legislations in Malaysia is also expected to provide the impetlls to growth in c1elmlllci for the peR and Measurement Instruments. (Source: IMR Report) Our revenue registered a positive growth at AAGR of 2.75% and CAGR of 1.35% for the period from FYE 2012 to FYE 2015. In FYE 2013, we secured a large purchase order from KNM, the delivery of which was completed over FYE 2013 and FYE 2014. Such purchase order has led to an increase in our revenue by 26.88% in FYE 2013. Consequentially, our PAT, after excluding the extraordinary gain ofRM8.44 million from disposal of property, plant and equipment, has also increased by 15.02% in FYE 2013. Although we recorded a higher revenue in FYE 2014 as compared to FYE 2012, our revenue for FYE 2014 is lower than that of FYE 2013 due to a lower contribution from the large purchase order. Hence, our PAT also declined in FYE 2014 by 18.69% after excluding the one-off gain of RM8.44 million on disposal of propeliy, plant and equipment in FYE 2013. For FYE 2015, our total revenue has declined by 13.60% mainly caused by lower sales volume from customers involved in the oil and gas industry and palm oil and oleochemicals industry. Consequentially, our PAT also decreased by 20.92% or RM2.97 million. As explained in the IMR Report in Section 7, the decline in sales volume was due to the unfavourable price trend of crude oil and crude palm oil in 2015. As noted earlier, crude oil prices dropped to an average of USD50.8 per barrel in 20 IS, representing a decline of 47.2% as compared to 2014. As for the crude palm oil, the average price dropped by 9.7%. Due to the price trend of crude oil and crude palm oil, market players within the oil and gas and palm oil and oleochemicals industries were pressured on the business profitability and have shied away from new investment or reduce or defer their investment decisions. Such market condition affects our business as we supply our PCE and Measurement Instruments to customers from the oil and gas and palm oil and oleochemicals industries. Our dependency on the performance of end user markets from these two industries is detailed in Section 4.2.2. As compared to FYE 2012, the net cash generated from our operating activities in FYE 20 IS has registered a positive growth from RM7.23 million to RMI2.03 million. In FYE 2015, our CUlTent ratio remains at a healthy level of 4.59 times and our gearing ratio is relatively low at 0.11 times. Our Management’s discussion and analysis of our financial condition, results of operations and prospects are as set out in Section 12. Dancomech is principally involved in trading and distribution activities and as such we do not incur large capital expenditure. Over the last four (4) FYEs, our Group’s largest capital expenditure was incUiTed for the acquisition and construction of our new headquarters cum warehouse in FYE 2014. Moving forward, we plan to expand our business by setting up a stainless steel flexible hose assembly line which will be funded through our IPO proceeds. Such assembly line also does not involve material capital expenditure, with the cost of setting up and getting the assembly line into operation estimated to be approximately RMO.50 million. Overall, our business is affected by the downward pricing trend of crude oil and crude palm oil. However, the impact is mitigated by the fact that we have a large customer base from a diverse range of industries and there is a steady increase in our list of long standing customers. Over the last four (4) financial years, our customer base has increased from 1,131 customers in FYE 2012 to 1,459 customers in FYE 20 15, with more than 5 of our top 10 customers for FYE 20 IS have been dealing with us for at least 5 years. We put in eff0l1s to establish long term relationships with our customers but we are not heavily reliant on anyone of these customers. The majority of our sales are not based on large purchase orders and hence we are able to sustain our business even in the absence of large purchase orders from our customers who are involved in large projects usually related to the oil and gas industry. 6. BUSINESS OVERVIEW (Cont’d) In addition, our business involve supplying components for the industrial pipeline system. Despite market conditions, the end users will still need to incur operating expenditure in order to maintain their existing industrial pipeline system for their business operations. Hence, our business is palily suppOlied from the need for replacement ofYalves by new or existing customers. To mitigate the impact of the downward pricing trend of crude oil and crude palm oil, we are also gradually increasing our exposure to the water treatment and sewerage industry which has a positive outlook moving forward. The Malaysian population is projected to grow steadily to reach 38.6 million by 2040, and this is expected to spur the continued demand for water services moving forward. A higher demand for water services will translate to greater expansion in water treatment and sewerage facilities. The increased revenue from this industry is expected to compensate for the shOli term volatility of the crude oil and crude palm oil prices. FUliher, according to the IMR RepOli, the PCE and Measurement Instruments market for industrial pipeline systems in Malaysia is projected to grow at a CAGR of 3.2 per cent from 2016 to 2020 to reach RM2.52 billion in 2020. Based on the positive outlook for the PCE and Measurement Instruments market in the long term, our future plans and strategies, and our competitive advantages as outlined in Section 6.1.1 (g), our Board is of the view that we are well positioned to enjoy positive growth in the foreseeable future. Whilst we recognise the existence of market challenges in the industry and the various risk factors as outlined in Section 4, we are committed to our business and our growth strategies which have been put in place to propel us to be a stronger player in the PCE and Measurement Instruments market. Neveliheless, in the shOli tenn, our profit margin may be affected due to additional costs to be incUiTed in connection with compliance with the Listing Requirements and corporate governance, and also due to the unfavourable pricing trend of crude oil. One of our strategies to maintain our profitability is to price competitively in order to attract new customers and maintain existing customers. We will also source for new suppliers who can provide competitive pricing without compromising quality and increase in product range that are increasingly in demand in the market and hence more profitable to Dancomech. [The rest of this page has been intentionally left blank]

 

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