(June 17): TrickleStar, which designs and supplies energy-saving products to US customers, has been hit hard by the deepening trade tensions between the US and China. This is because the company’s products, which are manufactured in China, are subject to higher tariffs imposed by the US. Yet, this is not stopping the Malaysian-headquartered company from seeking a listing on the Catalist board of the Singapore Exchange.
Bernard Emby, CEO and executive chairman of TrickleStar, acknowledges that now is “not the most opportune time” to list. But he has decided to go ahead because a listing status will provide the company’s customers and partners with “a level of comfort” and “transparency”.
To him, the amount of new funds raised from the IPO is quite minimal. “It wasn’t really to raise a huge sum of money or do an exit or anything like that,” he tells The Edge Singapore in a recent interview.
TrickleStar is placing out 15 million new shares. This represents 18.3% of its enlarged share capital of 81.8 million shares. Priced at 26 cents a share, the IPO is valued at just 6.53 times its FY2018 ended Dec 31 earnings.
From the IPO, TrickleStar is expected to raise gross proceeds of $3.9 million. Of this, $400,000 will be used to scale up in its existing markets, expand into new markets and establish new sales channels. Another $1 million will be used for product development and acquisitions of products, businesses and assets. A further $1 million is for general working capital. The remainding $1.5 million will be used to cover listing expenses.
According to Emby, TrickleStar’s products were first hit by higher costs after the US imposed 10% tariffs on US$200 billion worth of Chinese imports late last year. This worsened in June as President Donald Trump raised the tariff rate to 25% and warned that he may slap further tariffs on another US$300 billion worth of Chinese imports.
TrickleStar non-executive and non-independent director N Gunananthan, who was at the same interview, laments that the haphazard manner in which tariffs are imposed are making pricing difficult. “For example, we bring in products at 10% tariff, but tomorrow it goes up to 25%. How much of it are we able to pass over to consumers? We just need stability in pricing,” he says.
Buying time
Among TrickleStar’s energy-saving products is its patented Advanced Powerstrip, which has two models: Tiers 1 and 2. The device is a smart power strip that automatically cuts off power supply to unused plugged-in electronic appliances. In addition to the Advanced Powerstrip, the company designs and supplies load controllers, energy monitors, energy meters and surge protectors.
Emby plans to make his products smarter down the road. For one, the devices would be able to recognise and analyse consumer habits to anticipate their needs, and also interact with motion sensors, temperature sensors and light sensors to automate the switching on and off of electrical products and appliances. “We are investing in technologies that enable users to become more energy-efficient,” he says.
TrickleStar’s existing products are sold mainly to utility companies as well as specialised US firms that help other companies monitor and reduce energy usage. Since 2017, the company has sold its energy-saving products on its website, in e-commerce marketplaces and through the physical stores of US retailers such as The Home Depot.
TrickleStar does not manufacture the products itself, though. Since 2010, it has been using Taiwan-listed Powertech Industrial as its contract manufacturer. Powertech’s plants are in China. The good working relationship with Powertech thus far has enabled TrickleStar to enjoy cost savings from manufacturing and assembly economies of scale. Powertech is an existing shareholder of TrickleStar and will own a 4.1% stake in it after the IPO.
With seemingly no end in sight to the escalating trade tensions, will TrickleStar consider changing its manufacturing supplier? “I think all options are on the table,” Emby says. “But we have an outstanding relationship with Powertech. We are in almost daily discussions with them on this problem. I don’t foresee that we are going to change this [relationship]. We are working to come to a solution very quickly.”
For now, the company has mitigated the impact from higher tariffs of 25% by overstocking inventory at the 10% tariff level. This inventory is currently held in the company’s US warehouses and drawn down on a regular basis upon customers’ orders. “It should buy us time till August,” says Emby.
But in the longer term, Emby says Powertech is looking to relocate some of its manufacturing facilities outside China to spread the risk. On its part, TrickleStar is looking to outsource its non-Powertech-manufactured products — which are also made in China — to another country. “We have to plan for the worst and hope for the best,” he says.
That said, Emby still sees a silver lining. He says such a hostile trade environment could help ease competition by squeezing out smaller competitors. In particular, they will find it difficult to raise working capital, which is needed to pay upfront duties when importing products, he explains.
On the other hand, TrickleStar can lean on its healthy balance sheet. For FY2018, the company had net operating cash flow of US$1.1 million, cash and cash equivalents of US$1.6 million and no debt. Revenue of US$12.8 million for FY2018 was 24.3% higher than in FY2017, as the company sold more Advanced Powerstrips. Thanks to wider margins, earnings more than trebled to US$1.9 million in the same period.
For a better world
Emby, who holds an Australian passport, does not consider himself much of an Australian, as he has spent most of his life elsewhere. He was born in the UK, but subsequently migrated to South Africa and lived there for 18 years. Thereafter, he moved to Australia and spent 10 years there. In 1998, he moved to Kuala Lumpur to oversee the development of Clipsal Integrated Systems’ commercial and marketing programmes for South Asia. “[I’m] more Malaysian than anything else now,” he says.
Clipsal was eventually acquired by Schneider Electric, a French MNC. Emby left Clipsal and went into management consulting. In 2007, he decided to start TrickleStar because he wanted to leave a cleaner and sustainable world for his children. “I know that sounds really soppy, but that really was [my intention] to make a difference,” he says. “We are in a world that has never been more overcrowded. The pressure to conserve natural resources and energy is greater than it has ever been.”
This IPO is managed by PrimePartners Corporate Finance and trading will start on June 18.
