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SIM Tech Announces Strategic Transformation in 2019 Proactively Seizes Opportunity of IOT Market Potential

Hong Kong,  22 August  2019

Leading  provider  of  handset and  IOT terminals, EMS  business, IOT systems and O2O business and ntelligent manufacturing in China, SIM Technology Group Limited (“SIM Technology” or the “Group”; SEHK stock code: 2000), will proactively carry out strategic transformation, pay extensive attention to and, participate in, technology development, aimed at riding an explosive growth of the Internet of Things (“IOT”) market segments this year.

As for its interim results for the six months ended 30 June 2019 (the “Period”), revenue of the Group amounted to HK$517 million. The revenue drop in the Period was the result of the disposal of the modules business and change of the original business model to that of an Electronic Manufacturing Services (“EMS”) provider. During the Period, the global economic environment has been challenging. However, armed with more than 30 years of experience in the industry, the Group will seize the opportunity presented by the enormous market potential in the IOT industry spurring the Group to a successful transformation, with a gross profit of HK$53 million in the Period.

Handsets and IOT terminals business is the Group's largest revenue source in the Period, with revenue of  HK$287 million, accounting for 55.4% of the  total. The market in this segment has been rapidly developing, from focusing on handset terminals to diversified non-handset terminals, demonstrating huge market potential. In order to seize this opportunity, the Group has continued to transform to the IOT and industry application  terminal business, generating revenue in some sub-areas. The Group designs and produces various intelligent terminals for customers for a wide range of applications, such as scanning, mobile point-of-sale (“POS”), intercom network terminals, encryption, augmented reality (“AR”) glasses and smart watches, among others. These products have earned the patronage of high-end customers in Europe, the US and Japan. In the first half of the year, the Group started research and development (“R&D”) of new products, with production expected to begin and revenue to be recorded in the second half year.

EMS business achieved revenue of HK$51 million. In early 2018, after the Group completed the disposal of the wireless communication modules business to Sunsea Group, the segment has switched from the original brand manufacturer (“OBM”) operation model into the EMS model since the second half of 2018. In addition to providing EMS for Sunsea Group, the Group has also proactively developed new customers and new processing products. Currently, it is engaged in negotiation with an internationally renowned company, with good progress being made. The Group’s EMS processing capacity now covers application areas  including high-end luxury handsets,  industrial AR glasses, smart wearing accessories, scanning terminals, and monitoring tablets.

Revenue of intelligent manufacturing business in the first half of 2019 amounted to HK$46.4 million. Gross profit was HK$14.4 million, whereas gross margin increased by 7.2 percentage points to 31.0%. The increase in gross profit margin is due to the higher margin in the increase of small batch orders. The automated testing system production lines of the industrial robot  business department, having met stringent market requirements for years, have kept maturing and now occupy a certain share of the market. At the same  time,  the Group has been actively developing various industrial robots  for other industries, with some products already launched. On the other  hand, revenue contributions from the Artificial Intelligence (“AI”) and machine vision product lines and industrial IOT product line increased significantly over the same period. In view of its leading technological advantages in this field, the Group believes that AI, visual product and industrial IOT product lines are set to become growth drivers of the business segment in the future.

IOT system and O2O business is in an adjustment period. Due to the Group’s years of experience in the technology of IOT terminals, it has a large number of mature products and high-quality customers. At present, it is exploring more potential offline business, focusing more on the market of Internet of Vehicles and so on.

Looking ahead, the Group will maintain a sound and progressive business  strategy for business development, and execute the established strategic  principles. For the handsets and IOT terminals business, the gradual issuance of 5G licenses in Mainland China and overseas will keep fuelling the handset replacement trend in the next few years. In addition, the fast maturing supply chain of the consumer and the IOT terminal market will facilitate the launch and development of VR/AR, Internet of Vehicles and HD video transmission for various industrial application scenarios. The demand is growing for new forms and functions of IOT and industrial application terminals, pointing to potential business opportunities for the Group’s handsets. As such, the Group will develop a number of suppliers for multi-variety and small-batch orders to ensure timely delivery of materials. In addition to serving its current quality customers well, the Group will keep prospecting for new customers in the IOT  industry, at home and overseas.

The main business development direction of  the Group’ EMS business will be automotive electronics. The Group will also continue to provide EMS for wireless  communication modules  in  the  future,  and actively  explore  new  customers and develop new processed products. Armed with a strong  technical background, sophisticated technology and quality management system, continuous development of the IOT industry has presented new business segment opportunities to the Group. The Group believes it can also  enhance its efficiency and quality level via bringing in, modifying and  upgrading automated and intelligent technology production. It will be able to improve production efficiency, and see its EMS business sustain steady growth.

To maintain the competitive advantages of its intelligent manufacturing business, the Group will strive to develop new products and new markets, and enlarge its market share through initiatives such as seizing the strong development potential of  the 5G commercial market. The Group will grasp this opportunity to quickly capture new markets and expand its market share, capitalising on its technological advantages in product R&D and also the good word-of-mouth reputation it has built up and the trust it has earned from customers. The AI, machine vision and IOT product lines, nurtured by the Group during the past few years, will bring to it more impressive returns.

For the IOT system and O2O business, due to the Group’s years of experience in the technology of IOT terminals, a large number of mature products and high-quality customers, the follow-up IOT system business  will  strengthen  the cooperation with the terminal sector to provide customers with “cloud + terminal” one-stop solutions. The Group believes that with the further improvement of this service, it will bring growth to the business and turn the loss around into profit.

Mr. Wong Cho Tung, Executive Director of SIM Technology, concluded, “Although the external environment and the process of business  transformation presents difficulties and tough challenges, the Group still stands firm after countless economic cycles. Armed with its excellent team and deep technical background, the Group will seize the opportunity of market segmentation in the IOT industry and become a powerful competitor and a pioneer in the Internet of Things terminals business. We strive in this way to achieve long-term stable growth and bring the best returns to shareholders.”

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