Success Transformer Corporation Bhd (4 March 2025)
As of 2025, Success Transformer Corporation Bhd (SUCCESS) continues to specialize in manufacturing and distributing a diverse range of electrical equipment. The company’s product portfolio includes the following key categories:
Transformers: SUCCESS is a leading manufacturer of low voltage transformers, which are essential for power distribution across various industries such as energy, manufacturing, and infrastructure development. These transformers remain a core offering, catering to both domestic and international markets.
Lighting Products: The company provides energy-efficient lighting solutions, prominently featuring LED lighting designed for industrial and commercial applications. These products emphasize sustainability and cost-efficiency, meeting the needs of a broad customer base.
Smart Lighting Solutions: A significant addition to their lineup is the Intelligent Lighting Control System (iLCS). This system integrates Internet of Things (IoT) and Artificial Intelligence (AI) technologies, offering advanced features like real-time monitoring, adaptive dimming, and energy optimization. It is specifically tailored for smart city applications, reflecting a forward-thinking approach to urban infrastructure.
(1) Historical performance
Between 2012 and 2017, the company’s stock price increased from RM0.47 to RM1.80 (highest price), below are the favourable factors contributed to the company success.
Consistent Revenue and Profit Growth:
Revenue grew from RM295.6 million in 2012 to RM395.48 million in 2017, a 33.8% increase.
PAT increased from RM30.6 million to RM46.07 million, a 50.6% rise, reflecting improved profitability.
Significant Debt Reduction:
By 2017, borrowings decreased from RM93.68 million to RM62.08 million, reducing the debt-to-equity ratio from 20% to 6%. This strengthened the company’s balance sheet and lowered financial risk.
Innovation and Product Development:
The company invested in R&D, particularly in LED lighting and smart lighting solutions like the iLCS (launched in 2017), aligning with global trends in energy efficiency and smart-city technologies.
Geographical Expansion:
Exports grew from over 40 countries in 2012 to over 60 by 2013, diversifying revenue streams and reducing reliance on the domestic market.
Strong Brand Recognition:
Brands like NIKKON® and QPS® gained traction locally and internationally, supporting sales growth.
Dividend Payments:
Consistent dividends (e.g., 6% in 2012, 10% in 2017) signalled financial stability and attracted income-focused investors.
From 2013 onward, the company emphasized LED lighting as a growing product segment, driven by demand for energy efficiency. As of 2017, the company “Lighting and Transformers Segments” contributed 77% of revenue and 90% of profit after tax (PAT), underscoring their dominance. The launch of the Intelligent Lighting Control System (iLCS), a smart lighting solution, further highlighted growing demand for innovative lighting products.
In short, the five years of outperformance from 2012 to 2017 were due to the company riding the LED light wave, increasing geographical expansion, and scaling up profits from improved sales.
2019 to 2025 (present day)
From 2019 to March 2025, the company’s stock price has remained largely stagnant, with occasional increases that were later reversed. This pattern mirrors the company’s underlying financial performance, characterized by relatively flat sales and earnings, alongside a series of unfavorable factors and risks that have hindered consistent growth.
Since 2019, revenue has hovered around RM230-240 million, showing little to no sustained growth. PAT has fluctuated between RM10 million and RM22 million, often boosted by one-off events (e.g., asset disposals) rather than operational improvements. This stagnation in sales and earnings aligns closely with the stock price’s lack of sustained upward movement.
Unfavorable Factors and Risks
The company faced numerous challenges from 2018 to March 2025 that contributed to its stagnant performance:
Losses in the Process Equipment Segment:
In 2018 and 2019, this segment posted significant losses (RM4.77 million and RM4.33 million, respectively), dragging down overall profitability. The company disposed of a 65% stake in Seremban Engineering Berhad (SEB) in 2019, exiting this underperforming business, but the initial impact was substantial.
COVID-19 Pandemic:
The pandemic hit hard in 2020, causing a sharp revenue decline (from RM324.79 million in 2019 to RM230.03 million). Movement control orders, global lockdowns, and supply chain disruptions affected operations and sales, with lingering effects into 2021 and 2022.
Global Economic Uncertainties:
Persistent issues like foreign exchange volatility, inflation, geopolitical tensions, and a slowing global economy created a challenging environment. These factors particularly impacted overseas sales, a key revenue driver, as seen in 2024 and Q1 2025.
Market Sluggishness:
Overseas markets were sluggish due to travel restrictions and supply chain issues, notably in 2021 and 2024. Local sales also declined during full movement control orders in 2022, contributing to revenue dips.
Is the company product showing any progress/improvement?
New Product Introductions
Contrary to the assumption that no new products were introduced, the company actively launched and enhanced products post-2018:
2018: Launched the “Trimax” LED Street Light, a modular design for the IoT era, showing innovation in LED lighting.
2019: Focused on R&D for energy-efficient LEDs and “smart light” solutions, emphasizing eco-friendly designs.
2020: Introduced the Intelligent Lighting Control System (iLCS) with features like surveillance and motion detection.
2021: Announced plans for a new product segment, though specifics were still in development.
2022: Advanced the iLCS with city-wide data management solutions (e.g., traffic and environmental sensors).
2023: Integrated advanced IoT sensors, AI traffic modules, and smart metering into the iLCS platform.
2024: Expanded iLCS with real-time wireless communication and adaptive dimming features.
Clearly, the company introduced new products and enhanced existing ones, particularly shifting toward smart lighting and IoT-integrated solutions.
The LED Wave: Tapered Off or Evolved?
Rather than the LED wave tapering off, the company adapted to market trends:
2018–2019: Continued emphasis on LED lighting while introducing smart lighting solutions.
2020–2024: Shifted focus to IoT, AI, and smart-city features in lighting products, moving beyond traditional LEDs.
2023–2024: Emphasized sustainability with products reducing carbon emissions and supporting smart-city infrastructure.
The LED market didn’t decline for the company; instead, it evolved into advanced, tech-driven solutions, aligning with emerging demands.
(2) Current trend and how to benefit from
The core products of this company are centred around two main areas: smart lighting systems and low-voltage transformers.
Favorable Factors
For Intelligent Lighting Control System (iLCS)
Growing Demand for Smart Lighting Systems
The research collectively emphasize a robust increase in demand for smart public lighting systems, particularly within smart city initiatives. In Malaysia and the ASEAN region, demand is expected to rise significantly beyond 2025, with Malaysia’s smart cities market projected to reach USD 120 billion by 2030 (from USD 15 billion in 2020) and the ASEAN smart street lighting market growing at over 20% annually. Globally, the smart lighting market is forecast to expand from USD 19.1 billion in 2024 to USD 77.6 billion by 2033, with the intelligent street lighting segment growing from USD 6.5 billion in 2022 to USD 28.29 billion by 2030. This presents a substantial market opportunity for the iLCS.
Energy Efficiency and Cost Savings
Smart lighting systems, including iLCS, offer significant energy savings (40-80%) and reduced operational costs, making them highly attractive to municipalities and governments. The articles highlight that replacing traditional streetlamps with LED and smart controls can cut energy use by up to 80%, with payback periods as short as six years. Examples like Singapore’s 8.75 million kWh annual savings and San Diego’s USD 2.4 million yearly cost reduction underscore the economic appeal of these systems.
Government Policies and Initiatives
Governments across Malaysia, ASEAN, and globally are promoting smart city development and energy-efficient technologies through policies and funding. In Malaysia, incentives like the Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) support smart lighting investments, while the Twelfth Malaysia Plan (2021–2025) allocates funds for public lighting upgrades. The ASEAN Smart Cities Network (ASCN) and initiatives like Singapore’s nationwide smart LED rollout by 2022 further drive adoption, creating a supportive environment for iLCS.
Technological Advancements
The maturation of IoT, wireless networks, cloud platforms, AI, and advanced sensors enhances the feasibility and functionality of smart lighting systems. The research note that these technologies enable remote monitoring, adaptive dimming, and fault detection, improving efficiency and reliability. Singapore’s Remote Control and Monitoring System (RCMS) and emerging models like Lighting-as-a-Service (LaaS) exemplify how technological progress supports iLCS deployment.
Public Safety and Urban Management
Smart lighting systems contribute to safer and more livable cities by improving nighttime visibility, deterring crime, and integrating with urban management tools (e.g., traffic sensors, security cameras). The articles cite examples like Singapore’s 80% reduction in maintenance complaints and ASEAN cities using smart lights for environmental monitoring, aligning iLCS with municipal priorities for safety and quality of life.
For Low Voltage Transformers
Indirect Benefits from Smart City Growth
Although the articles focus primarily on smart lighting, the expansion of smart cities and urban infrastructure is likely to increase demand for reliable power distribution systems, including low voltage transformers. As smart cities integrate more IoT devices and energy-efficient technologies, a stable power supply becomes essential, indirectly benefiting transformer demand.
Unfavorable Factors
For Intelligent Lighting Control System (iLCS)
High Initial Costs and Financing Challenges
Upgrading to smart lighting systems requires significant upfront investment in hardware, networking, and integration, posing a barrier for budget-constrained municipalities. While financing models like LaaS and energy performance contracts are emerging, scaling these solutions across all cities remains slow, potentially delaying iLCS adoption.
Infrastructure and Technical Gaps
Implementing IoT-connected streetlights depends on reliable communications infrastructure (e.g., cellular, RF mesh), which may be underdeveloped in some ASEAN regions. The articles also note a lack of interoperability standards and technical expertise, complicating large-scale iLCS deployment.
Maintenance and Reliability Concerns
Smart systems introduce new complexities, such as ensuring connectivity, managing software updates, and protecting against cyber-attacks. Municipalities may hesitate to adopt iLCS until reliability is proven at scale, as highlighted by concerns over maintenance and system uptime in the articles.
Market Fragmentation and Competition
The smart public lighting market is highly competitive and fragmented, with global players (e.g., Signify, Osram, Schneider Electric) and regional firms vying for projects. Intense competition may pressure pricing and require the company to differentiate iLCS through superior reliability, service, or financing options.
Policy and Procurement Issues
Not all local governments have updated regulations or procurement processes to prioritize smart lighting’s long-term value over initial costs. The articles suggest that lengthy procurement cycles and a focus on lowest upfront bids could slow iLCS adoption, alongside potential privacy concerns if streetlights include sensors or cameras.
For Low Voltage Transformers
Potential Technological Displacement
The focus on energy efficiency and smart systems could shift demand toward more advanced or integrated power solutions (e.g., smart grids) rather than traditional low voltage transformers. If transformers do not adapt to these technological requirements, they may face competitive disadvantages.
Future demand for 2.5 MVA low-voltage transformer
1. Optimistic View
The outlook for SUCCESS’s 2.5 MVA low voltage transformers is promising, driven by robust market growth and favorable conditions across Malaysia and ASEAN.
Strong Market Growth:
The transformer market in Malaysia is projected to grow at an 8–8.1% compound annual growth rate (CAGR) from 2025 to 2031, while the ASEAN power transformer market is expected to nearly double in value by 2032, with a CAGR of 7.8%. This growth creates a strong demand environment for 2.5 MVA transformers, which are widely used in medium-scale power distribution applications.Key Demand Drivers:
Infrastructure Investments: Malaysia’s national utility, Tenaga Nasional Berhad (TNB), plans to invest RM45 billion between 2025 and 2027 to modernize the grid, including smart grid enhancements and renewable energy integration. Similar large-scale projects, like Indonesia’s new capital city, Nusantara, will require extensive distribution networks across ASEAN, directly boosting demand for transformers in the 2.5 MVA range.
Data Center Boom: Malaysia’s data center market is forecast to triple by 2030, with electricity demand reaching 7.7 GW. Data centers often rely on multiple 1–3 MVA transformers for reliable power distribution, making the 2.5 MVA segment a key beneficiary of this growth.
Renewable Energy Push: Malaysia targets 20–31% renewable energy by 2025, and ASEAN has over 28 GW of solar and wind capacity. These projects require transformers to connect decentralized energy sources to the grid, supporting demand for 2.5 MVA units in distribution systems.
Urbanization and Industrialization: With Malaysia’s urban population projected to hit 80% by 2030 and its manufacturing sector expanding (e.g., electronics and high-tech industries), new residential, commercial, and industrial developments will drive the need for distribution transformers.
Technological Alignment:
The shift toward smart grids and energy-efficient technologies aligns with SUCCESS’s capabilities. The company’s focus on innovation—demonstrated by its smart lighting solutions—suggests it can adapt its transformer offerings to meet demands for IoT-enabled, high-efficiency units, which are increasingly sought after in Malaysia and ASEAN.SUCCESS’s Competitive Edge:
SUCCESS is well-positioned to capitalize on this growth. Its established presence in Malaysia (40 years), export reach to over 60 countries, and emphasis on energy-efficient solutions give it a strong foothold. The company’s operational efficiency and financial stability further enhance its ability to meet rising demand and compete effectively in a growing market.
2. Pessimistic View
Despite the positive trends, several challenges could hinder SUCCESS’s ability to fully capitalize on the demand for 2.5 MVA low voltage transformers, presenting a more cautious outlook.
Supply Chain and Cost Pressures:
Global supply chain disruptions have extended transformer lead times from 12–14 months to over 30 months, while raw material costs (e.g., copper and steel) have risen, increasing production costs by 36% since 2021. These factors could strain SUCCESS’s profit margins, delay deliveries, and reduce its competitiveness, especially if it cannot absorb or pass on these costs.Intense Competition:
SUCCESS faces stiff competition from global giants like Schneider Electric and cost-competitive Chinese manufacturers, who benefit from economies of scale. With 37 suppliers of 2.5 MVA transformers listed on platforms like Alibaba.com, the market is crowded, potentially leading to price wars that could erode SUCCESS’s market share and profitability.Technological and Market Shifts:
Emerging alternatives, such as microgrids and off-grid solar systems in rural ASEAN areas, could reduce reliance on traditional transformers. Over the longer term, advancements in solid-state transformers and power electronics might disrupt demand for conventional units like the 2.5 MVA transformers SUCCESS produces, though this risk is more distant.Economic and Regulatory Risks:
Malaysia’s regulated power sector and potential economic slowdowns could delay infrastructure projects, such as TNB’s grid upgrades. Regulatory uncertainties or financing constraints might slow transformer procurement. Additionally, stricter energy efficiency standards could force SUCCESS to invest heavily in redesigning its products, increasing costs.Local Limitations:
Malaysia’s transformer industry struggles with limited research and development (R&D) capabilities and skilled labor shortages. If SUCCESS cannot innovate quickly or scale production efficiently, it may lose ground to international competitors better equipped to meet market demands.
In summary, the company’s products—the Intelligent Lighting Control System and low voltage transformers—are valid, legitimate, and not obsolete. The iLCS benefits from strong market trends in smart lighting, while transformers maintain steady relevance in power distribution. We can forecast some growth for both, though the competitive environment will likely keep it at a low to moderate rate. This positions the company to remain a viable player in its markets, with opportunities to capitalize on ongoing urban and technological transformations.
(3) Financial analysis
Balance Sheet Quality
The company has exhibited robust balance sheet quality, characterized by consistent growth in its net-net current assets (NNCA) across multiple periods. This upward trajectory was evident not only during the high-growth years of 2012–2017 but also persisted through the revenue stagnation that began in 2018, achieving a compound annual growth rate (CAGR) of approximately 10% since 2012. A distinguishing feature of the company’s financial discipline is its ability to generate substantial cash flows from operations, eliminating the need for external financing to support its activities. This internal funding capacity has facilitated both consistent dividend payouts and a steady buildup of cash reserves on the balance sheet. Furthermore, the current market capitalization relative to NNCA stands at an all-time low, highlighting an undervalued yet increasingly fortified financial position.
Earnings and Cash Flow
The company’s earnings performance is marked by notable consistency in its profit margins, with gross profit, EBIT, and net profit margins remaining stable across most years, barring minor fluctuations in 2018 and 2020. This reliability is underpinned by strong operational cash generation, which has enabled the company to sustain its dividend policy and accumulate cash reserves without reliance on external capital. Historically, total net income has outpaced free cash flow (FCF), a disparity largely attributable to elevated capital expenditures (CAPEX) prior to 2018; from 2011 to 2017, average FCF stood at RM7 million against an average net income of RM27 million. However, since 2018, this dynamic has shifted, with average FCF rising to RM18 million and average net income settling at RM16 million through 2024, reflecting improved cash conversion in recent years. Despite stagnant revenue since 2018, the company’s resilience in maintaining profit margins and enhancing cash flow generation underscores its operational strength and financial prudence.
(4) Company characteristics
1. Strengths
Consistent Profit Margins
The company maintains stable gross profit, EBIT, and net profit margins across most years, with only minor dips in 2018 and 2020. This reflects strong cost management and effective pricing strategies, ensuring profitability even when revenue growth slows.Strong Cash Flow Generation
The company generates robust cash flows from its operations, enough to support its activities without needing external financing. This has allowed it to pay consistent dividends and build cash reserves, strengthening its financial position.Growing Net-Net Current Assets (NNCA)
The NNCA has grown steadily at a compound annual growth rate (CAGR) of about 10% since 2012. This growth, even during periods of flat revenue after 2018, highlights the company’s effective management of working capital.Innovation and Product Relevance in Smart lighting
Continuous investment in research and development (R&D), especially in smart lighting technologies like the Intelligent Lighting Control System (iLCS), keeps the company’s products aligned with market trends such as smart cities and sustainability.Situated in growing segment
The overall growing segment of smart cities/lighting and transformer demand as stated above might boost the company product in future.
2. Weaknesses
Stagnant Revenue Growth
Since 2018, revenue has hovered between RM230-240 million with little growth. This suggests difficulties in expanding market share or scaling the business, possibly due to market saturation or competition.Dependence on Core Segments
The company relies heavily on its lighting and transformer segments for financial performance. Without diversification into other high-growth areas, it risks being vulnerable to downturns in these specific sectors.Competitive Market Environment
The smart lighting market is crowded with major players like Signify and Osram. This intense competition challenges the company’s ability to stand out and grow its market share.External Market Risks
Factors like foreign exchange fluctuations, geopolitical tensions, and global economic slowdowns pose risks to the company’s overseas sales and supply chain, given its significant international presence (nearly 50% of sales is from overseas).Limited Focus on Emerging Technologies
Although the company invests in smart lighting, it has not emphasized other high-potential areas like renewable energy or advanced power solutions / advanced transformer, potentially missing out on broader market opportunities.
(5) Valuation
The company, currently valued at a market capitalization of approximately RM157 million, demonstrates a strong financial foundation underpinned by consistent cash generation and no dependence on external financing. This prudent financial management is evident in its balance sheet, which, as of December 2024, reflects RM110 million in cash and investment equivalents. To account for potential liquidity constraints, a conservative 20% provision rate is applied, yielding an estimated excess cash reserve of RM88 million. Deducting this from the market capitalization results in an implied business value of RM69 million, suggesting that the market may be significantly undervaluing the company’s core operational assets.
In evaluating the investment’s potential, a required return of 15% is applied, which necessitates annual earnings of approximately RM10 million. Conservatively substituting free cash flow (FCF) for earnings, historical data from 2011 to 2024 shows an average FCF of RM13 million, comfortably surpassing the required threshold. Furthermore, even under a stressed scenario using the company's lowest revenue year (2020, RM223 million), only a 4.5% net income margin would be needed to meet the RM10 million earnings target. This is well within the company’s demonstrated capability, given its historical average net income margin of 7% over the same period, reinforcing its ability to deliver the required returns.
The company’s consistent dividend distributions, steadily improving net-net current assets, stable profit margins, and robust balance sheet collectively position it as a compelling value investment. While the analysis conservatively assumes no future growth—despite favorable trends in the smart lighting segment—the company’s resilient financial performance and substantial cash reserves provide a solid foundation for investors. With the stock’s implied business value notably below its operational potential, it presents an attractive opportunity for those seeking undervalued assets with reliable income generation and financial stability.
End verdict
In conclusion, this stock presents a compelling investment opportunity due to its robust financial health, characterized by consistent profit margins, strong cash flow, and growing net current assets, all underpinned by prudent management and no reliance on external financing. Despite challenges like stagnant revenue growth since 2018 and a competitive market, the company’s innovative Intelligent Lighting Control System aligns with the rising demand for smart city solutions, bolstered by supportive government policies and technological trends. With substantial cash reserves, a conservative valuation suggesting undervaluation, and reliable dividend payouts, it offers a favourable risk-reward balance, making it an attractive option for investors seeking stable returns and a margin of safety.
