ZD Motor (中大力德, 002896.SZ), a Ningbo-based manufacturer of reducer, gearbox and other robotic components, announced recently that it will set up a wholly owned subsidiary in Singapore and invest up to US$36.80 million in a wholly owned plant in Thailand to begin production there.
An exchange filing shows that the Thailand subsidiary’s business scope covers the development, production, sale, import and export of gear motor and reducers.
ZD Motor explained that by fully leveraging local resources in Thailand, it hopes to enhance its competency and profitability, as well as reduce the purchasing costs for foreign clients.
In addition, shifting part of its production to less costly locations yields the dual benefits of better market access and a buffer against trade risks.
Founded in 1998, ZD Motor specializes in the development of motor drive, micro and specialized motor, precision reducer, robotic body and all-in-one smart effector.
Its produces around 100,000 units of reducers per year, including planetary gearbox, RV reducer and harmonic reducer. It listed on the ChiNext board of Shenzhen Stock Exchange in August 2018.
ZD Motor is the latest in a string of Chinese companies to expand to Southeast Asia. BYD planned to invest more than US$250 million in Vietnam to manufacture automobile parts. On March 8, Foxconn, Apple’s major contractor, said it will increase the capital bases of two Vietnam-based subsidiaries by US$60 million.
ZD Motor’s pivot to Southeast Asia also mirrors this trend. Besides, it is part of the company’s strategic restructuring and search for new growth drivers.
Over the past few years, its revenue has grown but at a modest pace, and occasionally even slipped.
Between 2019 and 2021, ZD Motor recorded an income of 676 million yuan (US$98.13 million), 761 million yuan and 953 million yuan, respectively, with a corresponding net profit attributable to shareholders at 53 million yuan, 70 million yuan and 81 million yuan.
The company posted 669 million yuan in revenue in the first three quarters of 2022, down 9.84% year on year. The net profit attributable to shareholders was 42.61 million yuan, down 38.33% from the previous year.
ZD Motor’s gross margin also has been dwindling. It stood at 28.7%, 26.9% and 26.2% in 2019, 2020 and 2021. As of Q3 2022, its gross margin slid further to 23.61%, which is low relative to industrial peers.
The company blamed the lackluster performance on internal production overhauls and surging raw material and labor costs.
As such, its decision to follow some Chinese companies with a move beyond national borders is also seen in the context of declining results.
Cen Guojian, president of ZD Motor, issued a warning last year that the company would fold if it failed to transform or upgrade.