We visited Nico Steel two plants in Suzhou China. The first plant was the metal slitting, shearing, polishing and levelling facility. The 2nd plant was an electroplating facility.
Company Background
Nico Steel (Nico) was founded in 1991. It was listed on Catalist/Sesdaq in 2005 and transferred to the Mainboard in 2009. Nico provides customised metal material to the electronics industry. In 2000, it expanded outside Singapore to set up operations in China. In 2007, Nico began operations in Thailand. After several years of investments, we believe Nico has transitioned from commodity metals to customised metal alloys for the electronics industry. Nico’s significant customers are in the smartphone industry (trillion dollar market cap company), tablet PC (world largest software company by revenue) and drones (world largest drone manufacturer). Nico has factories located in Singapore, China and Thailand. More details in 1Oct 2018 report.
Share Price Drivers
Nico typically has 20 projects at various stages of development. We believe, the three key projects are the following:
On a separate note, the 16,666 sqm metal slitting plant on 68 Yinshan Road Wuzhong Economic Development Zone was purchased in 2003. Since then, several surrounding factories have turned into residential developments. Moreover, approximately 600 metres away is a subway station.
Outlook
From our visit, we realise the three competitive strengths of the company:
1) Company’s capability and relationship with metal mills to continually create and test new metal alloys and formulas;
2) Direct relationship with branded customer product development teams that can enable Nico’s products to be spec-in early into new mobile devices;
3) After 16 years in Suzhou, the company is plugged into the whole metal stamping and contract manufacturing supply chain to understand their evolving needs and challenges.
The underlying trend for more customised metal from Nico is because smaller and lighter devices require sturdier and thinner metal and faster device speed results in more heat generated.
Other highlights
ODM vs OEM refresher. In a tablet project, the design will be from the brand owner. If an ODM model is chosen, this party or contract manufacturer will have the authority to purchase and select the components and suppliers. Inadvertently, since a fixed price has been given to the brand owner, the ODM will squeeze the whole supply chain for lower cost. The brand owner just ensures the product look is as per the design. And product recall risk is with the ODM. Under OEM model, the brand owner will have a role in components and supplier selection. For Nico, they work directly with the brand owner to get their product qualified and pricing determined. Thereafter, all metal stampers have to source from Nico and there is less risk of price discounts because negotiations have been conducted directly with the brand owner.
Design in and qualification life-cycle. It starts with a first article to the design teams, then P1/P2 trial stage, then toward DVT1/2 prototype. At DVT2, the product is virtually confirmed unless major change in design. Next, MP1 stage where units will be given to partners to try. The final stage is mass production (MP2). The whole process could take 1 to 1.5 years.
Ways to remove heat. There are generally three ways to remove heat generated in an electronic device: Firstly, active is to use the material to remove the heat; Secondly, passive is to use the fan to remove the heat. But this takes power and is noisy; Thirdly, radiative is to push the heat into the air via air gaps. Heat will affect the life span of the device. A typical CPU can hit 160 degrees Celsius.
Electroplating plant. When we visited the plant, new lines were being installed to raise productivity and capacity. The electroplating process is tightly controlled by the authorities. There is heavy use of water in this process to clean the metal at every stage and prevent contamination. This could lead to metal contamination if not treated. Around 100 electroplating plants may have been shut down in Jiangsu province as China tightened environmental requirements. Nico alone can consume 100-300 tonnes of water per day. And each plant is given a fixed quota of water they can discharge daily. Advantage of electroplating is it can alloy or combine various metal at thinner dimensions.
[The thermal fin will be electroplated with copper and/or nickel over aluminium alloy metal to achieve the heat dispersion and weight management objectives].
The various metal features. Copper is a good conductor but expensive, heavy, soft and oxidises (need plating). Alloy the copper (or CA series) with nickel can strengthen it. Aluminium is cheaper and light but traditionally not used because of insufficient strength. Magnesium is lighter than aluminium but flammable in dust form and brittle. Stainless steel is strong and corrosion resistant but heavy because of the iron element.
Other products. Apart from the three key products mentioned, these are some of the products either in development or smaller in volumes:
Important Information
This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.
By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.
The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.
This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.
Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.
To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.
The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.
This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.
IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE
Where the report contains research analyses or reports from a foreign research house, please note: