The stocks of manufacturers were hit as investors sold their shares in a knee-jerk panic. Manufacturers that weren’t listed, including Hi-P International, were luckier as they were shielded to a certain extent from the volatility of public markets even as they tried to adapt to the new challenges.
Yao Hsiao Tung, executive chairman and CEO of the company, is not making light of the challenges. With more than four decades in this business, Yao, who turns 85 this year, has seen more than a fair share of business and economic cycles, but this trade war is at a different level. Hi-P was listed on the Singapore Exchange for nearly two decades before being delisted in 2021.
China, the main target of the tariff war, is hurt to a certain extent. However, the US is inflicting a heavier cost on itself as Americans are forced to pay more for daily necessities, from toilet paper to eggs. Markets, of course, are jittery as inflationary pressures threaten to slow the economy down. “You kill 10,000 of your enemies at a cost of 8,000 lives of your own, but in this case, it is the other way round,” says Yao in an interview with The Edge Singapore.
Thanks to Trump’s notorious rapid flip-flops, there is some reprieve before the complete set of tariffs is levied. However, the damage has been done. Countries across the world, even as they try to negotiate “big, beautiful deals” with Trump, are already jolted by how the US is dismantling the world order it had built. Even if trade ties are restored to the pre-Trump era, it will take some time for trust and goodwill built up over the decades to recover.
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Nonetheless, Yao is confident that Hi-P, which has a headcount of more than 20,000 workers today, will see through this challenge. “We started as a few guys in a small workshop. We’ve gone through many ups and downs and challenges, but remain confident.”
Manufacturing for China
Yao has a somewhat interesting background. He was born in China, but grew up and was educated in Taiwan. He was hired by Dupont, a US multinational company, and then posted to Singapore where he eventually established his own business here. He has called Singapore home for decades.
“Singapore has maintained a neutral, balanced position between China and the US, and Singapore is not a target of the US. We are in a relatively fortunate position here in Singapore. Our geographical position is helpful for a company growing in this international arena,” says Yao, referring to how Southeast Asia is a broader base for Hi-P to adapt to the challenges. “This is a crisis, but we should turn this into an opportunity,” he adds.
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Yao explains that over the years, Hi-P has set up extensive manufacturing facilities in China with five locations today: Shanghai, Suzhou, Nantong, Chengdu and Xiamen. Outside China, Hi-P, besides its company headquarters in Singapore, is also in Vietnam, Thailand, Malaysia, the Philippines and India. The way Yao sees it, having this extensive manufacturing network means Hi-P can better adapt and accommodate where its customers want.
For obvious reasons, Singapore might not have the scale or cost structure to operate a massive manufacturing base. However, Yao explains there is continued investment in R&D here to better support operations in other Southeast Asian sites.
Yao agrees that manufacturers are feeling the pressure. Still, he is confident that his business can stay resilient, as his customers, mainly top-tier US and European consumer brands that enjoy a certain level of demand, can better weather changes. Another key reason for Yao’s optimism is that the outsourcing business model is ingrained in how these brands function. “They will still need to manufacture; the question is where,” he says.
He says his customers have not asked him to bear potentially higher costs from the tariffs if imposed, but there have been requests to shift to other Hi-P manufacturing sites outside China, where the rates will be lower for sure. When asked about the complexities of these shifts, Yao has a ready answer: “We have the experience.” After all, Hi-P has actively expanded in Southeast Asia and India instead of concentrating within China and is staying nimble after experiencing Trump’s first presidential term.
Nonetheless, Yao is optimistic that the US and China will sit down and reach some kind of compromise. He reasons that a slowing economy and a more challenging environment for US consumers will hit Trump’s popularity and force him back to the negotiating table.
Some commentators have suggested that with the US imposing tariffs on friends and foes alike, other major economic blocs, specifically Europe, China and the rest of Asia, will actively step up trade and other business activities among themselves to compensate for the shortfall with the US. Hi-P’s customer base has a relatively lower representation from Europe, which shows additional room to grow.
Meanwhile, China, suffering from the weakening export-driven growth it has relied on for decades to drive its economy, has been actively turning inwards. Specifically, China is trying to boost domestic consumption with rebates and subsidies so that domestic spending can help offset softer export numbers and continue to hit the GDP target of 5%.
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Within China, wages have been increasing, which means labour costs are now higher relative to several Southeast Asian economies. With tariffs, manufacturing outside China is even more compelling.
Yao points out that the cost pressures are hitting both foreign companies operating inside China and domestic Chinese enterprises. Besides selling in China, these domestic manufacturers also want to export their goods. However, with the tariffs, producing their products outside China now makes sense. However, it is not easy for them to bring capital outside China to invest in the necessary manufacturing facilities, nor is it too easy for them to raise capital outside China. As such, Hi-P, with its network both inside and outside China, can be a key manufacturing partner for some of these domestic Chinese companies, says Yao.
This is why, he adds, Hi-P might consolidate its manufacturing presence within China while actively expanding its existing capacity outside China.
‘Whampoa Military Academy’
Yao’s strategy to be the overseas manufacturing partner of Chinese companies may not work for other manufacturers. Hi-P has a long history of operating in China. While the country’s economy took off in a big way only after it entered the World Trade Organization in 2001, Yao was already back running businesses in his country of birth more than a decade prior, which, in a way, makes Hi-P one of the early generation of manufacturers in China.
Under Yao, many generations of managerial talent were trained under him to the point that some know Hi-P as the “Whampoa Military Academy” of China’s manufacturing space. During World War II, half of the division commanders of China’s army were commanded at different points in time by academy graduates, whose most famous superintendent was Chiang Kai-shek himself.
Yao is gratified by this nickname, which acknowledges what Hi-P has done. For those former employees who have joined other companies and become key managers of manufacturers competing with Hi-P, Yao feels no animosity. Instead, he says he is happy for them. He points out that some former employees are working for his customers. “These former colleagues remain friendly to us and are helpful to our business,” says Yao.
Productivity drive
Still, Hi-P will not stay unscathed from the fallout of the trade war. The company’s revenue this year, estimates Yao, should be around the same as last year’s. Hi-P would have enjoyed the usual growth if not for the trade war. Yao will not worry about this speed bump from external factors outside his control. “We just need to work harder,” he says.
What Hi-P has been doing is to find ways to continuously improve its productivity so that it can remain profitable amid challenging conditions. The company keeps a close eye on efficiency and costs. For example, there is a lot of emphasis on ensuring the machinery is well-maintained to run smoothly for longer. Under-utilised machines will be disposed of.
Hi-P also plans to build stronger and closer ties with its customers, most of whom have been with the company for years. New customers, too, may not be as significant in generating absolute revenue, but Hi-P, recognising the potential growth of these products, places a lot of emphasis on these ties.
These new customers not only help bring in more revenue and improve economies of scale, but also help Hi-P build a broader and more diversified customer base that is more resilient to changes. Hi-P should know. Past key customers included former handphone maker Nokia and Blackberry. The company has since won over new customers today who are the market leaders of the same industry, plus other leading brands.
To stay competitive, Hi-P ensures its technological know-how and efficiency are constantly improving. Each year, the company spends around $50 million on creating moulds for manufacturing parts and other R&D activities.
Next bound of growth
While there are near-term challenges, Yao is already looking forward to the next growth phase. Last July, 65 Equity Partners, a unit of Temasek Holdings, invested $100 million in Hi-P, which was privatised in 2021 at a valuation of $1.6 billion. 65 Equity Partners’ investment, which values Hi-P at $2 billion, was made with a view that Hi-P will potentially go for an initial public offering again as a bigger and more valuable company. Meanwhile, the investment will further strengthen the company’s already considerable financial muscle. According to Yao, around half of Hi-P’s net assets are cash and equivalents.
Instead of letting the cash sit idle, Hi-P is actively looking for acquisition opportunities to add new capabilities and access new customers to speed up the company’s growth. “We are very keen to do M&A,” says Yao.
One area of interest is artificial intelligence (AI). Lots of market chatter and investors’ attention have been on how AI can help improve productivity, how Nvidia chips are needed to provide the computing capacity, how data centres will be in big demand, and how copious amounts of additional power will be required.
However, what is less visible is the supporting ecosystem of various types of hardware. Yao figures that along with the surge in demand for servers, there will be corresponding growth in demand for parts ranging from connectors to switches to antennas — all of which require precision engineering capabilities of manufacturers like Hi-P to produce.
Hi-P is no stranger to acquisitions. In October 2019, not long before Yao privatised the company, he spent $42.5 million to acquire engineering plastic components manufacturer South East Asia Moulding Company, or Seamco. When announcing the deal back then, Yao called the two companies a “natural fit” thanks to the highly complementary businesses, which gave Hi-P immediate access to a blue-chip customer and “enormous” growth prospects in the consumer electronics and automotive market segments.
Since then, Hi-P has bought two more manufacturers based in Malaysia, acquiring not just their customers but also giving it ready access to new manufacturing sites from which it can be more flexible to run its production lines.
Here in Singapore, where its company headquarters is based, along with a relative small manufacturing presence, Hi-P is more focused on product R&D, where new products for customers are developed, or existing ones, refined, and from which it can then support the more extensive in-scale production of other sites across southeast Asia.
Relishing his growth track record achieved in the company’s first three decades, Yao is optimistic that Hi-P can resume its growth trajectory. In the first 28 years, Hi-P was able to grow its revenue 10 times every seven years or so, from a mere $100,000 in 1981, to $1 million in 1987, to $10 million in 1994, followed by $100 million in 2001 and then $1 billion in 2008. In FY2019 ended December 2019, the last full financial year before the company was privatised, Hi-P reported a revenue of $1.37 billion and earnings of $80.3 million. Since then, as a private company, its revenue has increased by around 40%.
On more than one occasion, Yao has set an ambitious target of hitting a turnover of $10 billion by 2030, driven by organic and inorganic growth. A key reason for Yao’s optimism is that Hi-P has built a deeper bench of managerial capabilities while implementing more comprehensive systems and processes to help drive growth. “We have more talent, we are more mature, we are better able to deal with challenges,” he says.
Now, M&A deals may grab attention with the big headline deal value numbers, but the real hard work of integrating the acquired companies is often underrated. All too often, all kinds of friction ensue. Yao’s approach is to create more distinct business units, where each unit will be given more autonomy and thus the flexibility to chart its growth. And, of course, these different units will be supported by a common company culture, which Yao personally instils in them, as well as an attractive incentive scheme.
Stay on target
Despite the hiccups and less-than-ideal market conditions created no thanks to the trade war, Yao plans to list the company again as early as 2026 and no later than 2030.
When Hi-P International was listed in 2003, the Singapore market was a hive of activity after the Sars pandemic and with China’s rapid boom driving growth across regional economies.
Hi-P was able to maintain a reasonable level of investors’ attention over the years, with active coverage by analysts. Still, the valuation gap between China’s booming stock markets and Singapore became too stark.
Yao explains he decided to delist the company in Singapore and then relist in China, given how Hi-P’s manufacturing facilities were mainly in China and that China is the clear manufacturing base for the world. Yao was hoping to fetch a higher valuation by listing in China. “If we IPO in China, our market cap can be much bigger, we can raise more funds and speed up our growth and expansion plans,” reasons Yao.
However, not long after the company was privatised in 2021, the external environment changed drastically. The Covid-19 pandemic hit China and the movement and contact restrictions made things more dire. Joe Biden also pursued the US-China trade war, which Trump started in his first term.
Most of Hi-P’s customers are American brands, with a few being European. The aftereffects of the pandemic, which resulted in strict containment measures in China, did not help improve market conditions. The planned IPO in China was thus put on hold.
Was Yao discouraged that the market did not quite give Hi-P a fair valuation when it was traded on the SGX? He maintains he did not mind, as the company did not raise additional funds after the listing. “I did feel that I’d let down other shareholders,” he says.
For Hi-P’s comeback IPO, Yao says he has mulled over whether he should list in the US, given the supposed depth and breadth. However, with what is happening today, he is inclined to have the listing in Singapore again. Yao is observing the measures proposed by the high-level market review committee and says he is looking forward to a more vibrant Singapore market.
Now, given his company’s already substantial financial resources and no lack of access to private capital, Yao maintains that going public is still something he prefers. He adds: “For us as manufacturers, winning trust and confidence as a listed company is easier and better. And as a listed company, we can grow systematically and help create more millionaires among our employees.”
