Investors worldwide are clamouring for Nvidia, the chipmaker leading the charge in artificial intelligence (AI) adoption. Despite its shares skyrocketing by 92.23% to US$925.95 ($1,248) year-to-date, it is often overlooked that Nvidia owes much of its success to gamers.
For decades, gamers have driven demand for its cutting-edge graphics processing chips, essential for powering their visually stunning and function-intensive games.
Nvidia chips have also become highly coveted by Bitcoin miners, who find that the chips’ graphics processing capabilities enable more efficient grinding and mining, aiding in their pursuit of crypto riches.
Ronald Teng, managing director of Ban Leong Technologies B26 , a local distributor of electronics and IT gadgets, is all too familiar with how this market behaves. To him, the constant upgrading cycle is an “evergreen” business.
Recently, Nvidia’s chips have been in the spotlight as AI technologies and applications have taken off, requiring copious amounts of computing power. “AI has really pushed the demand for these chips even higher,” says Teng in an interview with The Edge Singapore.
From a broader perspective, the AI craze is just one of many technology trends that have emerged and faded during Ban Leong’s three decades in business. The company began in 1993 by distributing multimedia speakers from Taiwan and CD-ROM computer games.
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As Teng remembers, his father — who was involved in home and car electronics at the time— had a supplier from Taiwan offering multimedia speakers for personal computers but lacked the necessary distribution channels. The younger Teng seized this opportunity, marking his entry into the rapidly expanding industry of personal computers and related accessories. Subsequently, he expanded Ban Leong’s reach, venturing into markets in Malaysia and Thailand.
With the company becoming more high-profile as it grew, bankers began to interest Teng in taking it public. Although initially hesitant, he agreed to do so in 2005, utilising the money raised to expand Ban Leong further into Australia, New Zealand, and China and for its in-house product development.
However, Ban Leong’s journey has faced its fair share of hurdles, which is common in business. In addition to distributing other brands’ products with slim margins, Teng also created his own products. While some of these in-house products performed admirably, others, like the portable phone charger or power bank, failed to gain traction, especially given their novelty in the early 2000s.
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“We reckoned that people would be using their mobile phones a lot and everyone had to bring a spare battery around,” Teng recalls.
When manufacturers launched new models in quick succession, new types of batteries were required, leading Ban Leong to look at power banks as a sensible product to introduce to the market, due to its ability to charge different phone models.
Unfortunately, says Teng, consumers were accustomed to carrying spare batteries back then, leading Ban Leong to discontinue the product.
The timing was particularly unfortunate, as this decision came just before the launch of the iPhone in 2007. With the advent of power-hungry smartphones, the demand for power banks surged rapidly, making them an almost indispensable accessory. “We had the right product at the wrong time.”
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Since then, Ban Leong has stayed true to its core distribution business, expanding by diversifying its portfolio and adding more brands. Among the approximately 50 brands it now represents are leading names such as Asus from Taiwan, Dell from the US, Huawei from China, Gigabyte, renowned for its motherboards, as well as industry giants like LG and Samsung from Korea, and Suunto, the Finnish smartwatch maker.
Besides its key product segments of IT accessories, gaming-related components and multimedia gadgets, smart Internet of Things (IoT) technology products for Wi-Fi and smart home systems have also grown in popularity over the years, to which Teng attributes to the growing application of technology over previously un-digitised products.
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He says: “The key thing is that innovation attracts people, and we always pay attention to products that can deliver advanced services to people. When we first onboarded smart vacuum cleaners, people asked us if we were going into a new segment of consumer electronics, and the answer then was no. But when we examined the functions and intelligence of the product class, we knew it was something we could get behind. So we started the early generation of smart vacuum cleaners in Singapore, and it’snow a staple in many homes.”
While the consumer segment takes up around 50% of Ban Leong’s business, 40% is occupied by its commercial segment, where key products include large-screen televisions and displays for hotels, meeting rooms and event spaces as well as video-conference equipment and network products.
According to Teng, the commercial segment’s growth was driven by the pandemic, when work-from-home arrangements became a daily norm across most industries. For the FY2023 ended March 31, 2023, the commercial segment generated revenue of $63.1 million, or 31% of total sales.
Teng points out that while commercial deals do add up with their bigger quantum versus consumer sales, there are opportunities and challenges for each segment. “As long as the product is good and convincing enough to serve a purpose, consumers will purchase. But in terms of business-to-business sales, you have to go through process testing, reliability testing, internal specification — all these things. What’s more is that neither [segment] are especially more margin-friendly, it really depends on the additional services we provide.”
Another avenue born out of the Covid-19 pandemic is Ban Leong’s e-commerce segment, where the company helps fulfil online orders. For FY2023, this segment generated revenue of $16.1 million, or around 8% of the company’s total.
“During the lockdown, we turned to e-commerce to help our vendors to continue to reach out to end-users by operating their brand stores. At the same time, we also attracted many new potential vendors who wanted to solely sell online. So, naturally we became their logistics and fulfillment partner, and we helped to build up their market share as a distribution platform,” adds Teng.
Although he wants to grow the business’s e-commerce segment thanks to its cross-border potential and ability to tap onto vendors who were previously limited by retail constraints, Teng points out there are downsides to online channels, and they will not completely supplant physical retail. “[Consumers] can’t really test the product. So we definitely have observed some impulse purchases by consumers, where after receiving the product, they don’t like it and then return it. In terms of that process, it does take up quite a lot of logistic costs as well.”
Normalisation and trails
Ban Leong’s earnings for FY2022 ended March 31, 2022, enjoyed a lift of 29% y-o-y to $9.4 million, on the back of a 23.5% increase in revenue to $225.6 million. The better showing was attributed to a spike in the sales of communication and entertainment products amid the pandemic lockdowns.
In the following FY2023 ended March 31, 2023, revenue dipped by 9.7% y-o-y to $203.7 million while earnings dropped 35.4% y-o-y to $6.1 million, which Teng attributes to the “opening [of the market following the pandemic]”.
In the most recent 1HFY2024 ended Sept 30, revenue increased by again by 2.1% y-o-y to $102.4 million, but earnings dropped 8.1% y-o-y to $2.17 million as the company’s margins were worn down somewhat no thanks to the stronger US dollar, which is how Ban Leong pays for its goods, versus Singdollar, the reporting currency. In line with the lower earnings, the company has trimmed its interim dividend for 1HFY204 to 0.6 cents from 0.75 cents paid in 1HFY2023.
Ban Leong’s share price has largely stayed at the same levels year to date, closing at 34 cents on April 3, valuing the company at $39.6 million. Its NAV, as at Sept 30, 2023, was 37.83 cents per share.
Since the 1HFY2024 results, there has been a series of share transactions by the insiders.
For one, the company has been regularly buying back its own shares, including most recently on April 3, when it paid 34 cents each for 488,900 shares. Earlier, on March 22 and March 25, it bought 398,000 shares and 400,000 shares respectively, also at 34 cents each. This brings the total bought back under the current mandate to around 3.2 million shares, equivalent to 2.853% of the company.
On Dec 1, Teng himself added to his stake by buying 10,400 shares from the open market at 36.5 cents, bringing his total interest to 30.32 million shares, or 27.25% of the company.
On the other hand, a substantial shareholder, Wang Wei, on Feb 2 sold two million shares at 35 cents each via a married deal to an unnamed buyer, leaving Wang with a stake of 20.78 million shares, or 18.88%, down from 20.69%. Back in 2014, Wang paid Teng 43 cents each for 23.8 million shares.
Another individual, Lee Eng Khian emerged as a substantial shareholder in the middle of last year when he bought 200,000 shares at 39 cents each, giving him a total stake of 5.66 million shares, or 5.05%.
Meanwhile, Teng prioritises a long-term outlook as he guides the company through the continually evolving technology landscape, a strategy he has employed for the past three decades, while navigating challenges such as cash flow. Ultimately, as reflected in the company’s Chinese name, Teng aims for Ban Leong to be an enduring business that will thrive indefinitely.
