Clearing the mess at Cape EMS

From a market capitalisation of RM830.7mil at the point of its initial public offering (IPO) in March 2023, Cape EMS Bhd has seen RM558mil a decline in value, with its current market capitalisation at RM272.8mil.

Cape EMS now trades at an all-time low of 28 sen a share.

Its managing director and CEO Christina Tee (pic), meanwhile, has found herself at the center of this development. 

The company and Tee experienced a series of financial challenges after certain blocks of Cape EMS shares were sold to investors post its listing.

Institutional and high net worth investors who bought those blocks of shares, as well as other shareholders of Cape EMS, were dismayed when profits dipped soon after, as they had expected the company’s prospects to remain strong.

Their selling of Cape EMS shares first began in November 2023, eight months after its listing.

As weaker-than-expected results continued, selling pressure increased, which in turn led to the massive margin calls on Tee, with the bulk of her 40% holdings in Cape EMS being liquidated by the financial institutions that she borrowed money from.

Today, Tee owns a mere 11.1% of Cape EMS, leading observers to wonder if she is still in control of the company. Meanwhile, a character by the name of Chung Chee Yang has since emerged with 8.6% of Cape EMS, leaving many to wonder if he is seeking to launch a bid for the company.

Chung also emerged in Cypark Resources Bhd three years ago and is now its second-largest shareholder with a 13% stake. He has not sought to be on the boards of either companies.

Back to Cape EMS, questions remain about whether Tee is still running the company, whether more of her stock will be force sold, her relationship with Chung and what is being done to fix the business and win back investors’ confidence.

In a written interview offered by Cape EMS, Tee says she remains “very much in control” of the company.

“I have built Cape EMS from the ground up, and my commitment to the business and its future remains unwavering,” she says, adding that she remains dedicated to steering the company towards achieving its long-term goals.

It is unknown how many of Tee’s shares remain pledged to the banks and the risks of those shares being sold down.

Meanwhile, Tee also says that Chung is not acting in concert with her. “He is an investor and clearly, he has recognised the value in Cape EMS,” she says.

On the question of whether she would sell her block to an interested buyer and if so at what price, her reply is that she is not a willing seller at this point.

“Cape EMS holds significant sentimental and strategic value to me. Having built this company from scratch, my focus is on growing the business, enhancing our market position, and ensuring we achieve our long-term objectives.”

Asked about the lessons she had learnt from the saga, especially about how she had pledged most of her shares in Cape EMS early on, Tee says: “It was most certainly a challenging experience, and no lesson is wasted, however bitter.

“It highlighted the importance of taking a more cautious approach when leveraging.”

Still, it is going to be an uphill task to win back investors’ confidence. However, Tee remains optimistic, noting that “ongoing interest from various investors and industry players demonstrates Cape EMS’s attractiveness and potential.”

She points out that the company’s declining earnings was due to the ups and downs that all businesses face. She insists its fundamentals are intact and encourages investors to “view our performance within the broader context of our long-term strategy and growth potential.”

“Our focus remains on enhancing operational efficiency, expanding into high-growth sectors like green technology, and diversifying our product portfolio.”

She adds that they are integrating iConn Inc into the business to achieve sustainable growth.

In late 2023, Cape EMS acquired US-based iConn Inc, for around RM77mil, aimed at strengthening Cape EMS’s presence in the global EMS market, particularly the United States.

Cape EMS did a private placement to fund that, but it is understood that many of the funds that took up the placement soon sold their shares after yet another disappointing quarter.

There were also concerns if the acquisition had been worth it.

But says Tee, “iConn specialises in virtual manufacturing services, including design for manufacturing, engineering and sourcing. Its integration has played a pivotal role in enabling our transition to an asset-light manufacturing model, thereby driving down capital expenditure.”

She explains that the asset-light model reduces reliance on owning extensive physical assets like factories and machinery.

“Instead, we focus on strategic collaborations and partnerships with external manufacturers as needed,” she says.

She points out that Cape EMS has expanded into green technology, particularly battery energy storage systems (BESS).

“Our BESS initiative involves the development of modular energy storage systems that support renewable energy adoption. Energy storage solutions are essential for managing power fluctuations and ensuring a stable energy supply,” she explains.

She adds: “To date, we have received initial orders from Australia, signaling strong international interest. Given the global shift towards renewable energy, this venture is expected to become a key revenue driver for us in the coming years.”

Commenting on past declining earnings, Tee put it down to a compression of margins due to price adjustments, coupled with exchange-rate movements.

“Despite these short-term setbacks, we remain optimistic about our future. We are actively working to enhance operational efficiency and diversify our product offerings to support long-term growth.”

She notes that the group is looking to expand into non-China, non-US markets such as Eastern Europe, Turkey, Indonesia and Central Asia for its wireless communication devices.

“This diversification allows us to reduce reliance on any single market, particularly the US, and address the growing global demand for alternative, non-China/non-US tech solutions.”