Risk Factors

NOTWITHSTANDING THE PROSPECTS OF OUR GROUP AS OUTLINED IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS (WHICH MAY NOT BE EXHAUSTIVE) AND RANKED IN ORDER OF PRIORITY BASED ON OUR EVALUATION, THAT MAY HAVE A SIGNIFICANT IMPACT ON THE FUTURE PERFORMANCE OF OUR GROUP IN ADDITION TO OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS, BEFORE APPLYING FOR THE ISSUE SHARES. NOTWITHSTANDING THE PROSPECTS OF OUR GROUP AS OUTLINED IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS (WHICH MAY NOT BE EXHAUSTIVE) AND RANKED IN ORDER OF PRIORITY BASED ON OUR EVALUATION, THAT MAY HAVE A SIGNIFICANT IMPACT ON THE FUTURE PERFORMANCE OF OUR GROUP IN ADDITION TO OTHER INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS, BEFORE APPLYING FOR THE ISSUE SHARES. (A) BUSINESS RJSK
(a) Dependenre on Major Customers

Based on our financial statements for the FYE 31 December 2005, a substantial panioo of our sales were made to five (5) customers comprising 96% of our Group sales. Please refer 10 Section 5.4.19 of this Prospectus for the details on our major customers. Our Group’s major customers comprise leading corporations and MNCs in the electronics. semiconductor and optoelectronics industries. We do not have a wide customer base due to the characteristic of the market segment that we are operating in. whereby it is a niche market with only a handful of major global players commanding a sizeable global market share in the respective industry. We are therefore dependent upon our key customers in respect of the sales of our products, and are exposed to the risk that should we lose anyone or more of these key customers. our business and sales will be materially affected. However, our business relationships with our customers are presently good and we believe, would continue in the future. OUf business model is premised on the fact that with Ihe ability to secure either one or two of this handful of global players in their respective industries as our customers. will provide us with the opportunity to grow with these global players. These global companies have volume growth and wide range of products. which will also give us the opportunity to provide a wider range of products to these customers. ]n addition to that. we have also strategized ourselves to focus on research, design and development capabilities to service these customers in the niche market segment/industry, such as diverse range of application for the products and high industry growth. With our current resources. we focus on establishing and maintaining good working relationships with these strategic customers who are leading MNCs, which will provide us with sizable volume of business. Our strategy of maintaining customer focus will provide us with an opponuniry to grow with the customers by providing a fuJI range of integrated and value-added services to the customers or growth in volume. Notwithstanding the above. we have also taken steps to mitigate the risk of dependency on major customers by developing a more diversified customer base, expansion into other geographical markets and broaden our product range. We have increased our key customers from three (3) during the FYE 31 December 2004 to five (5) during the FYE 31 December 2005 and our top customer·s contribution 10 total sales for the FYE 31 December 2005 was 40.0% compared to 61.3% in the previous year. Please refer to Section 5.4.19 of this Prospectus for the delails. We are also undertaking the development of our own products, namely the safely commercial vehicle LED lighting and the camera lens DC micromotor which will enable us to expand into other geographical market and broaden our product range to reduce dependency on our existing major customers. (b) Absence or Loog.Term Contractual Agreements with Customers We do not have long-tenn sales contracts with our customers due to the nature of business and industry that we are operating in. As the application markets for our Group’s products are characterized by technological changes, continuous development. improvement and miniaturisation of products to micron scale, our customers will not award long term sales contracts. Customers will provide us with three (3) to six (6) months sales forecast and confirmed contracts are made through repeated orders. Hence, the performance of our Group would be dependent on the ability of our Group to secure new sales orders on a consistent basis. Consequently. the failure of our Group in securing new sales orders in the future may have a material adverse financial impact on our Group. Nonetheless. as highlighted in paragraph (I) above, our strategy is to maintain customcr rocus by developing further the close working relationships that we have establislied witli our customers aud work in close liaison witli customers to be proactive in providing value-added services. Although there arc HO long~tenn sales contracts, \ve believe that we are able to maintain our customers as the switching costs for customers are vcry high. Thc produci design. development up to commercialization of thc products would normally take about six (6) montlis to one (I) year. As there arc continuous development and improvement to the products, it would be more economical and efficient for cuSIQIners to work together with the same vendor on a long-term basis. We arc involved in producing components for the automobile lightings and in tlie automotive industry, where there are stringent requirements to be adhered to. The Production Part Approval Process (PPAP”) and Customer Change Notice CCCW) are being enforced according to ISOrreclmical Specification -16949:2002 and governed by United Kingdom Accrediwtion Service CUKAS”). With thc PPAP and CCN in place. it is difficult for our customer to change supplier, as it could take aboul six (6) months to go througli the whole qualifying proccss with the new vendor. Aller the qualifle<l1ion proccss. it will rcquire another three (3) to six (6) months to design, develop and obtain approval rrom our customers for mass production or the products. We also have Ihe distinct advantage of having proprietary rights to the drawings of tlie toolings for the manufactnre of these products. It would involve high switching cost for our customers to change suppliers as the toolings need maintenance and may require modifications and changes from time to time. Without the drawings, it would be difficult for another supplier to make any changes. (c) MNCs Customers Re-direet Business VentUl’es to Outside Mall\~·sil\ Our strength lies in design and development capabilities. As a design house. we need not be at close proximity to Otlf customers. However. being at close proximity to our customers has the ad\’antage of providing prompt service to the customers ~md meeting with the customers on a regular basis to discuss issues. In the event that our customers rc·direCl business ventures to outside Malaysia, we may have to employ additional persolUlel to provide the same prompt service to our customers and to meet with them regularly. In this regard, we may consider selling up branch/Sides office to facilitate liaison with customers to Illaintain prompt services to the customers, jf the condition warrants it. Howe,·er, il should also be noted that currently, JH Tech has its R&D activities undertaken in Malaysia and it outsources its manufacturing aclivitics to China and the products are delivered to Clistomers in Thailand (lnd China, This arrangement works for the Group in being able to manufacture the products at competitive cost in China and having its proprietar,Y R&D activities undertaken in Malaysia. In the event that the MNCs re-direct business ventures to outside Malaysia. our Group should be ill a position 10 work out similar arrangement for the beneflls of all J)<lrties. (d) Uneeliaint)· in the Business Development Piau Our Group’s proposed folure plans. stralegies and prospects as outlined in Ule Business Developmel1l Plan in Section 8 of this Prospeelus will be dependent on. amongst oUlers. our Group’s ability 10 successfully develop and commercialise our products as planned, Our ability to penetrate into new markelS for our new products. hire and retain skilled pcrsOlUlcl, successfully manage gro\\1h and oblllin adequate fillfmcing as and when needed. There can be no assurance that our Group will be able to successfully implement our Business Development Phlll or !lmt unanticipated expenses or problems or IcclUlical diroeulties will not occur which would result in material delays in our implementation or even deviation from our original plans, In addiliolll the aclual resulls may deviate from the Business Developmellt Plan due to rapid technological and market chnnges. <IS well as competitive pressures, (e) Dela)·s in R&D Aetivities and Pl’Oduet Develc’l’l1\ent We have on-going development programmes with the purpose of enhancing Ollr existing products and dc\’eloping new products. There can be no assurance thal these development programmes can be snccessfully completed on timc so as to enable Ihe launching of the enhanced or new products on a timely basis in relation to the market requirements (lnd expecfations. Howevcr, we intend to minimisc such delays by stringent control over the entire product development cycle by having regular milestone checkpoint reviews and keeping abreast with the changes and developments in the industry to help ensure market acceptance of the products developed. (I) New Geographical Marl’et Expansion lllld its Related Risks Thereon Our Group currently has customcrs in Malaysia, Thailand and China. As part of our busincss dcvclopment plan, we intcnd to cxpand our business to other countries such as Taiwan. There can be no assurance that our Group will be able to successfully penetrate the new markets. In addition, such futurc cxpansion could expcsc our Group to foreign economic, political, legislative and other risks. Any failure to accurately assess these issues may adversely affect our Group’s business performance, financial condition and opcrating results. Howevcr, our Board intends to exercise prudence and careful planning to ensure that there would not be an over expansion. (g) Management of Future Growth Our Group plans to utilise part of the Public Issue proceeds to expand our existing business as well as undcrtake R&D into new products namely, thc safety commercial vehicle LED lighting and mobile phone camera lens DC micromotor. Our Group’s future growth and perfonnance will depcnd, iu part, on our ability to manage the gro\\1h, successfully penetrating the market for our new products and implement management and operating systems that can react promptly to changes in business and industry trends. As a mitigating factor, our Group has experienced management, R&D and production pcrsonncl to support our growth. However, therc can be no assurance that our Group will be able to effectively manage the expansion and growth plan and if we are unable to achieve the anticipated performance levels, our business and financial performance may be adversely affected. (h) Dependence on Key Personnel Our Group’s continued success will depend, to a significant extent, on the abilities and continued efforts of our Executive Directors namely Dato’ Tan King Scng, Mr Ooi Yeok Hock and Mr Tan Chin Hong and our senior management team. Our Group relies heavily on the abovementioned Directors as they bring along their in-depth industry knowledge and experiences as well as business network. Our Exccutive Directors liavc bcen the driving force of our Group and the loss of anyone of the above key Exccutive Directors may affcct the future performance of our Group. However, the moratorilUl1 on the shareholdings of our Promoters together with their Collective substantial interests in our Company will mitigate against the risk of their exit from the Group. Recognising the importance of our human resource, continuous efforts have been taken to develop a dynamic management team and groom the existing persOimel to ensure continuity and dynamism in the management team. We have in place a human resource strategy which includes a competitive remuneration package, training and development programme as well as a conducive working environment for our employees. We currently have a cordial relationship with our employees and our employees do not belong to any t!”dde union. We have also put in place an ESOS in conjunction with our listing on the MESDAQ Market. The ESOS wiII be an incentive to our employees to scrve our Group for the long-term and to participate in thc future gro\\1h and success of our Group. (i) Availability of Raw Materials and Fluctuation in Prices The major raw materials used such as silicon steel, stainless steel, copper, tin and steel materials are sourced directly from our supplicrs. We do not have any long-term supply agreement with any of our suppliers. We do not face any major risk from lack of contract with suppliers as our major raw materials can be sourced from other suppliers. The prices of these raw materials are mark to the prices quoted on the London Metal Exchange. Hence. we are exposed to price fluctuations of the raw materials. However, Ollr risk is mitigated to a certain extent in thaI our sales quotation has a price variation clause in the event of ,I change in the price of the raw materials as quoted on the London Metal Exchange of between the range of ±3% to ±10%. Notwithstanding this, we would normally re-negotiate and mutually agree with our customers before revising selling price to maintain goodwill. In the event that we are not able to revise the selling prices, our Group’s profitability could be affected. In addition to IIle above, we also source silicon steel from the supplier appointcd by one of our customcrs, namely Snnrock Steel Centre (M) Sdn Bhd. Our customer also sources its supply of raw matcrials from the same supplier and has bulk purchase orders and we are able 10 obtain competitive pricing due to the bulk purchase by our customer. U) Dependcncyon Major Supplicr Our corc competencies is in design and development and we have outsourced some of oLlr manufactnring process to Jinan Jingheng Yamada Electronic Precision Teclmology Co. Ltd. For IIle FYE 31 December 2005, about 67.9% of our Gronp’s purchases are sourced from Jinan Jingheng Yamada Electronic Precision Technology Co. Ltd, Th.is business arrangement is on an ongoing basis llnd there is no long term agreement signed for this arrangement and can be tenninated by either party. There can be no assurance that tltis supplier can or will continue to undertake tltis manufacturing process for us on the same or more advantageous terms. In the event that the existing arrangemcnt is terminated, IIlere may be an advcrse effect on the operating results of our Group. Howe\’Cr, we are of the view that it is beneficial to us not to have long tenll arrangement with our supplier as it enables us to source for competitive pricing. Our dependency on our major supplier is mitigated by the fact that it is not the only company who is capable of undertaking this manufacturing process for us. Our design and toolings can be provided to other companies for them to undertake the proccsses for us and we have taken IIle pre-emptive measure in identifying potential co-operation with other manufaclmcr. (I,) Forcign Exch,mgc Risks Our Group’s export sales are denominated in US Dollars and purchases from foreign suppliers are denominated in US Dollars. Jap’lnese Yen and Singapore Dollars. Our exposure in foreign exchange risk is mainly in US Dollars as Jap.1nese Yen and Singapore Dollars comprise less than 10% of the total purchases. For the FYE 31 December 2005, export sales in US Dollars comprised 49.1% of our Group sales whilst purclulses in US Dollars comprised 67.5% of total purchases for the Group. The portion of sales Clnd purchases denominated in US Dollars, have to a cel1ain extent provided a natural hedge to the fluctuations in foreign exchange rate. Our Group docs not have any hedging policy. Notwithstanding the foregoing, there can be no assurance that any future significant fluctuations in foreign exclmnge rale or changcs in foreign exchange control regulations will not adversely affect the financial results of our Group. (I) Future Clpital Injections We believe that the net proceeds from the Public Issue, togelller willI IIle cash flow generated from our operations and other existing sources of funds will be sufficient to meet our Group’s projected working capital, capital cOlllmitments and other cash requirements. However, there is no assurance that future events may not cause us to seck additional capital sooner. If additional capital is required. there can be no HSSUf(mCe that it will be available, or if available, that it will be on lenns satisfactory or favourable to us. The issue of additional equity or other convertible securities by us may result in the dilution of the interests of our shareholdcrs. (m) Limitation of Insurance Coverage OUf Group is aware of the adverse consequences arising from inadequate insurance coverage that could aITect OUf business operations. In order to mitigate such risks, our Group reviews and ensures adequate insurance coverage for our assets on a continuous basis. At present, we believe that our Group is adequately insured against unforeseen events such as fire, malicious damage, theft and burglary. Although we have taken the necessary steps to insure OUf assets adequately, there can be no assurance that thc insurance coverage would bc adcquate for the replacement cost of thc assets or any loss arising therefrom. (B) RISKS RELATING TO THE INDUSTRY
(a) Market Acceptance of New Products

Our Group is undertaking the development and commercialisation of the DC micromotor for the handphone camera lens and the safcty commcrcial vchicle LED lighting. Thc timely dcvclopment and commercialisation of new products is a complex process. Although our Group has undertakcn a study into these markcts, has thc rcqnisite expertise to develop these products and believes that it will havc the funding rcquired to implcmcnt its business plan, therc can be no assurance that our Group will continuc to have snfficicnt resources to successfully and accuratcly anticipatc teclmological and market trends, or to successfully manage long developmcnt cycles. We may also experience design, marketing and other difficulties that could dclay or prevent thc commercialisation of our new products. Thc introduction of ncwer compctitivc products may also affcct our Group’s product appeal to the prospective customers. If our Group is not able to address any of the issues as highlighted above in a timely maImer, our Group’s revenne and operating results could be advcrscly affcctcd. However, with the continued cmplUlsis placed on our R&D activities to enhance our core competencies and the close working rclationships established with the industry leaders, we believe that we can mitigate the aboYe product risks factor. (Il) Rllpid Technological Changes As a one-stop engineering solution provider, a strong R&D capability is important to meet the requirements of our customers and the changing trend of the industry. However. there are risks inyolved as the R&D efforts may require long lead-times, uncertainties with regards to the outcome of thc R&D efforts, delays in thc devclopment of potential products and lmcertainties due to the rapid changcs in teclmological know-how. Furthcrmore, the markcts for our products are charactcrised by rapid development and tcchnological changes, evolving industry standards, s\vift changes in customer requirements and new product introductions and enhancements. Hcncc, we nced to keep abreast with the latest teclmological developments to ensure that the increasingly sophisticated needs of our customers are met and to remain competitive. Nevcrtheless, we will still be subject to the risks, uncertainties and problems frequently encountered by companies in the MEC industry which include, amongst others, thc following:­(i) failure to keep abreast with changing teclmologieal standards and rcquiremcnts;
(ii) failure to anticipate and adapt to developing market trends and requirements: and

(iii) inability to maintain, upgradc and develop our systems and infrastructure to catcr to rapid expanding operations. Recognising thc nbovcmentioncd chnllenges. our R&D team constantly keeps abrcnst with new technologies and market trends. Both our marketing and R&D teams work closely with our customers who arc industry leaders to obtain feedback on market trends and customer requirements. We also [OClIS on our human resource development by providing in·house training and development programmes as well CIS on-the-job (raining to update and educate our employees. However. there can be no assurance tlmt our Group’s development policy will be successful in procuring the latest technologies and technical know-how. (e) Barriers to Entry ‘Illd Competition The barriers to entry for the industry are relatively high due to the requisition of leehn-ic.11 know-how nnd the rigorons qualificntion process from customers. Genemlly. a long period of gestation and quahficmion audit is required to be an approved MNC vcndor. Although therc nrc threats of new entrants. we believe that with the in-depth experience and knowledge of our management team in the various aspects of the industry, we have the requisite capabilities to compete in the industry. However. there can be no assurance that we will not be affected by the competitive strategies adopted by other companies within the samc industry. (C) OTHER RISKS
(a) Profit Forecast

This Prospcctus conttlins a profit forecast of the Group thell is based on assumptions which aliI’ Directors believe to be reasonable. but which nevertheless are subject to uncertninties and are contingent in nature. Due to the subjective judgements included and inherent uncertainties of the profil forecast, and because events and circumstances may not occur as expected, there can be no assurallCC that the profit forecast contained herein will be realized and actual results may be materially different from those shown. Investors will be deemed to have read and undcrstood the assumptions underlying the profit forecast that is contained hercin. (b) Contl’ol by Promoters Our Promoters, namely Dato’ Tan King Seng. NMSB, Mr Ooi Yeok Hock and Mr Tan Chin Hong, beneficially own in nggregate approximately 67.600/0 of our Company’s issued and paid-up share capital arter thc Public Issue. Consequently, our Promoters will be able to effectively influence the outcome of cenain corporate actions in a manner that could cause conflict \\’ith Ole interests of minority shareholders. Howc\’cr in thc event of related party transactions involving any of our Promoters. our Promoters would be requircd to abstain from ,”oling. In nddition. wc havc appointed two (2) indepcndem non­executive direclors. as a step towards good corporate governance nnd protecting the interests of minOlit)’ shareholders. (c) Capita’ Markel RiSliS You should note t1lat our Compau)’ \\’i11 be listed on the MESDAQ Market of Bursn Securities. The performance of our local bourse is vcr)’ much dependent on extcrnnl factors such as the perforIlmnce of the regional and world bourses. Sentiments arc also largely driven by internal factors slich as the economic and political conditions of the country as well as the growth potcnlial of the variolls sectors of the eeonol11)’. These factors \\’ill invariably contribnte to the volatility of trading volul11cs witnessed 011 Bursa Securities, thus adding risk to the market price of the Shares to be listed on Bursa Securities. Nevcrtheless, il shall be noted that the profitabilit)’ of our Group is not dependent on the performancc of Bursa Securities. (d) No Prior Markel for the Company’s Shares There has been no prior public market for our Shares. Therefore, we cannot assure you that an active market can develop for our Shares upon its liSling on the MESDAQ Market or if developed, that such a market can be sustained. The Issue Price of RM0.50 per Issue Share has been determined after taking into consideration a number offaciors, including but not limited to, our Group’s financial and operating history and conditions, R&D capability and technology, the prospects of the industry in which our Group operates and prevailing economic and market conditions. However, various factors may have an effect on how the price of our Shares may trade subsequent to its listing on the MESDAQ Market, such as sales of substantial amount of our Shares in the public market, fluctuations in our Group’s operating results, announcements of developments relating to our Group, and/or general industry conditions and economy outlook. There can be nO assurance that the Issue Price will correspond to the price at which our Shares will trade on the MESDAQ Market upon or subsequent to the listing. (e) Political, Economic and Legislative Considerations Adverse development in political, economic and regulatory conditions in Malaysia and other countries in which our Group is currently operating or where our Group may operate, source our supplies or market our products in the future could materially and adversely affect the financial prospects of our Group. Political and economic uncertainties include but are not limited to the risks of war, riots. expropriation. nationalisation, renegotiations or nullification of existing contracts, fluctuations in foreign exchange rates, inflation, changes in interest rates and methods of taxation. Whilst OUT Group continues to take preventive measures such as prudent financial management and efficient operating procedures, there is no assurance that adverse political, economic and regulatory conditions will not materially affect our Group. (0 Forward Looking Stalemenls Certain statements in this Prospectus are based on historlcal data which may not be reflective of the future results, and others are forward-looking statements in nature, that are based on assumptions that are subject to uncenainties and contingencies. The word “anticipates”, “believes”, “intends”, “plans”, “expects”. “forecast”, “may”. “will”, “could”, “would”, “predicts” and similar expressions as they relate to our Group or its business are intended to identify such forward-looking statements. All forward­looking statements are based on forecasts and assumptions made by our Board, and although believed to be reasonable. are subject to known and unknown risks, uncertainties and other faclors which may cause the actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in such forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable at this point of time, there can be no assurance that such expectations will prove to have been correct. Any deviation from the expectations may have adverse effects on our Group’s financial and business performance. THE REST OF THE PAGE IS INTENTIONALLY LEFT BLANK
(g) Delay’ in or Failure of the Listing The Lisling is exposed 10 the risk that it may be delayed or aborted, should any of the following events, which may not be exhaustive, occur:­(i) identined investors fail to subscribe for Ihe portion of the Issue ShllIes to be placed 10 Ihem;
(ii) the Underwriter exercise its righls pursuant to the Underwriting Agreement and discharge itself from its obligations thereunder; or

(iii) ‘ve tsre unable to meet the public spread requirements, that is. at least 250/0 but not morc than 49% of the total number of our Shares for which listing is sought musl be held by a minimum number of 200 public shareholders holding no less than 100 Shares allhe point of Listing. Although our Board will ende’\vour 10 ensure compliance with the Listing Requirements, including. inter-alia, the public spread requirement intposed by Bursa Securities for a successful Listing, no assurance can be given that the aboYcmentioned events will not occur and C<luse the Listing to be delayed or aborted. THE REST OF THE PAGE IS INTENTIONALLY LEFT BLANK

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