1

Makalot Industrial Co., Ltd.

Makalot Industrial Co., Ltd.
March, 2010
2
Makalot Industrial Co., Ltd.
Table of Contents
1. Company Overview
2. Financial Highlight
3. Why Makalot
Agenda
3
Makalot Industrial Co., Ltd.
A Glance at Makalot
Company Overview
Company Overview Production sites
Established in 1990 and listed on TWSE in 2003, Makalot is one of the most
well- known apparel ODM/OEM company in the Asia Pacific region.
Major customers include apparel specialty stores (Gap, Old Navy, Carters, Express
H&M, Mango), mass merchants (Wal-mart, Target), and department stores (Kohls,
JC Penney).
With its headquarters and R&D center in Taipei and production bases in five
countries, Makalot exports most of its products to the US, which accounted
for 98% of revenue in 2009.
Pure apparel manufacture, Makalot produces both knitted and woven fabric clothing.
A well known fashion manufacturer in the Asia Pacific region targeting
global and regional big apparel retailers.
Specialty stores Specialty stores Mass Merchants Mass Merchants Department Stores Department Stores
China (26%) China (26%)
Indonesia (33%) Indonesia (33%)
Cambodia (17%) Cambodia (17%)
Vietnam (18%) Vietnam (18%)
The Philippines (6%) The Philippines (6%)
4
Makalot Industrial Co., Ltd.
4 Surefire Ways to Recession Strategies
4 Strategies/ Company Overview
Focus on our core business (Concentrate on the 20 that produce the 80)
Focus on selling necessity- based products and service
Offer outstanding customer service
Continue cost reduction and add profit
Minimize our full-time staff
Run a tight ship budget-wise
Consolidate fabric vendor bases
Increase large-size orders, drop small-size orders.
Monitor credit risk
One year EDF> 1 /1.5/ 3 + Factoring
Ensure AR can be exchanged for Cash
By Non-Recourse Factoring, cut credit risk and improve AR days.
Diversify customers and markets
Second tier and new customers
Global market/ Big apparel retailers
Look for M&A and Alliance opportunities
Buy a business instead of starting one
Complement Product lines
Diversify clients and markets
5
Makalot Industrial Co., Ltd.
5 Key Growth Drivers and Dual-Core Mode
Growth Drivers+ Dual core mode / Company Overview
Market penetration
- Focus on selling existing products into existing markets and customers
- US market recovery
- Buyers consolidate and reduce vendors (First tier and Second tier customers)
- Increase the market share of current products (Horizontal Expansion )
Market development
- Seek to sell our existing products into new markets and new customers
- New geographical markets (China domestic market, Europe and Japan)
- New customers (Global market + Big apparel retailers)
- M&A and Strategic Alliance
Product development
- Aim to introduce new products into existing markets and customers
- Develop second core product line( Large size and basic items)
- Specialized in large-scale production mode ( Vertical integration ) V.S.
Multiple products and flexible production mode (core strengths)
Diversification
- market new products in new markets
In the next 5 years,
5 Key Growth Drivers = 3 N ( New markets, New customers, New products) + Economy Recovery + Vendor Consolidation
Dual-Core Growth Mode = Specialized in large-scale production mode + Multiple products and flexible production mode
Markct
Pcntratinn
Prnduct
Dcvclnpmcnt
Existing Pioducts New Pioducts
Markct
Dcvclnpmcnt
Divcrsificatinn
E
x
i
s
t
i
n
g

M
a
i
k
e
t
s
N
e
w

M
a
i
k
e
t
s
6
Makalot Industrial Co., Ltd.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006 2007 2008 2009 2010E
OTHERS
ASDA
A&F
EXPRESS
WALMART
CARTERS
J.C.PENNEY
HANESBRANDS
GAP(O.NVY)
TARGET
KOHL'S
Operating Highlights
Company Overview
Turnover by Product Line (2010E) Split of 2010E Revenues by Customers
Based on sales contribution, Kohls, Target, Gap, JCP, Hanesbrands stand out as Makalot key customers.
Major products include pants(23%),sleepwear(20%),and knit top(18%).
Top clients revenue proportion diagram
7
Makalot Industrial Co., Ltd.
Global Network/Production Sites
Company Overview
We can quickly adjust capacities among these sites to capture low-cost advantages.
0%
10%
20%
30%
40%
CHN IND CAB PHL VIN SLK
2007
2008
2009
2010I
Taipei, Taivan Headquarlers
Shanghai, China Office/ Sourcing Cenler
China Iaclory 1,970,000 27% 2,310,000 26% 264 15.8 15.0
Indonesia Iaclory 2,400,000 33% 3,060,000 34% 188 13.9 14.1
IhiIippines Iaclory 600,000 8% 500,000 6% 235 18.2 17.6
Cambodia Iaclory 1,130,000 16% 1,510,000 17% 110 15.1 14.3
Vielnam Iaclory 1,100,000 15% 1,620,000 18% 155 14.8 14.5
TolaI 7,200,000 100% 9,000,000 100%
2010 Capacily
(dozens)
%
2009I lolaI cosls
(US$/dozen)
Sile Iunclion
2009 Capacily
(dozens)
%
Monlh vages
(US$/person)
2010I lolaI cosls
(US$/dozen)
8
Makalot Industrial Co., Ltd.
Overheads
10%
Accessories
16%
Fabrics
58%
Labor
16%
Cost Breakdown
Material 60%
Labor 13%
Overheads 7%
Gross Margin 20%
Cost structure based on ASP Cost of good sold breakdown
Company Overview
9
Makalot Industrial Co., Ltd.
Regional Peers
Company Overview
10
Makalot Industrial Co., Ltd.
Strength & Strategy to Growth
Vendor matrix- narrow & deep
Vendor matrix- narrow & deep
Scale
Customer
relationship
Diversified
products
Speed
Value-added
service
Production
flexibility
High growth
High growth
Customers trust & reliance
Customers trust & reliance
Customer-oriented capacity
Customer-oriented capacity
9 mil. dozens in
2010
Aggressive
annual
capacity growth
One-stop
shopping
Market oriented
8 major
customers
ranked top 10 U.S.
apparel retailers
- Walmart (1)
- Target (2)
- Sears Holdings (3)
- Federated (1)
- JCPenney (2)
- Kohls (3)
- Gap (1)
- Carters
Specialization
Multi-country
Deployment
China & non-
China self-
production lines
and
subcontractors
Time to market
SCM
Materials &
plants
Innovation
- Designs
- material
sourcing
IT
Company Overview
11
Makalot Industrial Co., Ltd.
NT$ mi!!inn 2003 2004 2005 2006 2007 2008 3Q2009
Revenue 8,283 8,565 10,377 12,556 14,845 13,185 9,772
SaIes grovlh (%) 32.70% 3.40% 21.20% 21.00% 18.23% -11.18%
COGS 6,884 7,156 8,409 10,008 11,648 11,044 7,660
Gross profil 1,399 1,409 1,968 2,548 3,197 2,142 2,112
Operaling profil 780 766 944 1,206 1,606 706 959
Nel profil 535 581 590 821 1,104 291 645
Nel profil grovlh (%) 33.90% 8.60% 1.50% 39.10% 34.49% -73.68%
asic IIS (NT$) 4.7 4.81 4.85 6.66 7.86 1.96 4.25
Gross margin 16.90% 16.50% 19.00% 20.30% 21.53% 16.24% 21.61%
Operaling margin 9.40% 8.90% 9.10% 9.60% 10.82% 5.36% 9.82%
Nel margin 6.50% 6.80% 5.70% 6.50% 7.43% 2.20% 6.60%
ROI 33.21% 31.57% 28.60% 32.77% 35.51% 9.16%
ROA 18.23% 17.02% 14.75% 17.36% 20.11% 5.53%
Financial Highlight
Financial Highlight
12
Makalot Industrial Co., Ltd.
ASP/ Shipment
Financial Highlight
2008 ASP is better than expected, compared with an average erosion of 5% per year.
0
5
10
15
2002 2003 2004 2005 2006 2007 2008 2009 2010I
0
10
20
30
40
50
60
70
80
Shipmenl (miIIion dozen) (LHS) ASI (US$/dozen) (RHS)
2002 2003 2004 2005 2006 2007 2008 2009 2010I
Shipmenl (miIIion dozen) 2.43 3.33 3.68 5.16 6.50 7.51 7.02 7.20 9.00
Grovlh 37% 11% 40% 26% 16% -7% 3% 25%
ASI (US$/dozen) 72.40 72.30 69.80 62.76 59.82 59.91 59.30 56.14 52.82
Grovlh 0% -3% -10% -5% 0% -1% -5% -6%
13
Makalot Industrial Co., Ltd.
Debt Ratio
3Q2009 Net Cash position
- NT$ 1,320 million cash on hand
- NT$ 830 million debts
TolaI debl / lolaI assels
16.12%
22.75%
18.48%
9.11%
7.30%
2.71%
12.98%
0%
5%
10%
15%
20%
25%
`003 `004 `005 `00o `007 `008 3O`009
Nel debl lo equily
-13.69%
-31.93%
-32.96%
-52.52%
-29.77%
-25.81%
-14.58%
-60%
-50%
-40%
-30%
-20%
-10%
0%
2003 2004 2005 2006 2007 2008 1H2009
Financial Highlight
14
Makalot Industrial Co., Ltd.
Capital Expenditure
2007 capex was about US$17.11 million (NT$ 521 million)
2008 capex was about US$ 16.47 million (NT$ 513 million)
Slash capex for 2009 to around US$ 1.09 million (NT$ 36 million).
Maintain capex budget for 2010, less than US$1million.
Financial Highlight
40
60
104 106
264
521
513
36
-
`00
400
o00
2002 2003 2004 2005 2006 2007 2008 2009I
Capex(NT$)
15
Makalot Industrial Co., Ltd.
FCF/ Working Capital
CCC shortened to 33 days in 2008 from 44 days in 2003.
Superior working capital management will help further our free cash flow generation.
- Consolidated procurement materials and vendor bases for help to increase AP days.
- By Non-Recourse Factoring, we cut credit risk and improve AR days.
Free Cash Fl ow (NT$mi l l i on) 2003 2004 2005 2006 2007 2008
Net income 535 581 590 821 1104 291
Depreciation 31 44 91 108 174 247
Less: Change in Working Capital 211 -273 412 -251 492 -625
Less: Capital Expenditure 60 104 106 264 521 513
Free Cash Flow 296 794 163 916 265 650
Worki ng Capi tal 2003 2004 2005 2006 2007 2008
Inventory days 45 42 47 49 46 45
AR days 29 28 23 22 20 20
AP days 30 29 33 37 35 31
CCC 44 41 37 33 32 33
Financial Highlight
16
Makalot Industrial Co., Ltd.
Dividend Policy
3.70
3.10
3.74
4.70
5.97
2.00
2
1.5
0.5
0.5
2.80
0
2
4
6
8
2002 2003 2004 2005 2006 2007 2008
Cash Di vi dend Stock Di vi dend
Mainly cash dividend payout ratio will be maintained between 70% and 90%.
2008 earning pay-out
- NT$ 2 Cash Dividend per share (Cash payout ratio at 90%)
Financial Highlight
NT$
17
Makalot Industrial Co., Ltd.
Convertible Bond
In 2009, we issued 1 convertible bonds (CB3) with par value of NT$600mn.
CB3 is in-the-money with potential dilution of 7.16%.
Updated on 22 Mar., 2010
Financial Highlight
Duration
Issue Amount
(NT$mn)
Outstanding
Amount
(NT$mn)
Conversion
Price (NT$)
Potential
Conversion (mn
shares)
Dilution
(%)
CB3 Jun. 22, 2009- Jun. 22, 2014 600 493.9 44.8 11.0 7.16%
18
Makalot Industrial Co., Ltd.
2007- 2009 Business cycle
3Q is traditionally the strong season.
Financial Highlight
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1O 2O 3O 4O
SaIes(NT$miIIion)
2007 2008 2009
25%
23%
29%
23%
25%
26%
29%
20%
28%
30%
22%
20%
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
1O 2O 3O 4O
Dozens
2007 2008 2009
% to annual shipment volume
19
Makalot Industrial Co., Ltd.
Why Makalot
Strong management
Leadership position
Strong financial characteristics
Sound financial structure
Growing revenues and profit
Strong cash flow, ROE and ROA
High dividend payout policy
Why Makalot
20
Makalot Industrial Co., Ltd.
Q&A
Thank You
Thank You