ARMED with about HK$3 billion in cash, James Ting's Semi-Tech (Global) faces the enviable yet challenging decision about where to make its next investment. In the wake of successful turnarounds at Singer, Pfaff and Sansui Electric, Semi-Tech's next move is anticipated with heightened interest - and it might find bargain-hunting to be slightly more difficult. In a recent interview at his office in Exchange Square, company chairman Mr Ting said there was an abundance of investment opportunities available and that, ideally, he would like to make a much larger acquisition than Sansui or Pfaff. He said the process of buying a company like Pfaff, which has annual sales of about US$500 million, and a company with annual sales of $5 billion, was much the same, so a larger acquisition was not out of the question. ''It's not difficult to find targets if you have the resources and the credibility,'' Mr Ting said. ''These days, companies making takeovers all have one thing in common: synergy. General Electric's bid for Kemper is breaking ground because it has synergy. ''Today, you have to know how to generate benefits - we are in the right place in developing countries and we have a [sales] network from South America to Chinese villages.'' While Semi-Tech sifts through the large range of possibilities, Mr Ting stresses that the company will be sticking with its roots - the manufacturing and distribution of consumer durable products. ''I won't be competing with [Sino Land property tycoon] Robert Ng,'' he said. ''The best thing is to stay with what we know.'' The reputations of both Mr Ting and Semi-Tech received a hefty boost recently when Pfaff announced profits of 17.1 million deutschemarks (about HK$77.3 million) for the second half of the 1993-94 financial year, its first profit in 21/2 years. The performance reflects an extensive restructuring programme which saw Pfaff shed 3,000 employees, shift large amounts of sourcing to outside suppliers and focus more on sales in Asia. Mr Ting, 42, described it as a fascinating process which was practically problem-free from beginning to end - a significant achievement given the magnitude of Pfaff's losses and the stubborn reputation of its unionised workforce. The Pfaff turnaround was achieved, he said, because negotiations began 15 months before the 72 per cent stake was bought last July, from German businessman Wolfgang Schuppli, for 122 million marks. This allowed Semi-Tech to develop close relations with Pfaff's management and union leaders, who realised that without strong ownership, the company's future was bleak. The bond was cemented when managers from Semi-Tech and Pfaff went away together for several days to talk about strategy. ''The unions were not eager to co-operate but they were realistic and pragmatic,'' Mr Ting said. ''They had to have a partner who could [develop] the company internationally and we were the natural [choice].'' Among the areas where Semi-Tech applied its expertise was sourcing - Pfaff previously produced everything in-house, from nuts and bolts to electric motors, in order to maintain control over quality. Mr Ting said Pfaff's costs were slashed by 15 to 50 per cent after it started buying parts from suppliers in Taiwan, China, Indonesia and Eastern Europe. Semi-Tech's decision to generate more sales for Pfaff in Asia was made more out of necessity than anything else, because traditional markets in the Soviet Union and Eastern Europe evaporated after the Iron Curtain crumbled. Pfaff has already established a joint venture in Zhuhai, in Guangdong province, which will make low to medium-priced sewing machines for markets in Asia and South America. Operations will be managed by a German executive, to be based in Macau. The move towards less expensive products is a dramatic change for Pfaff, which spent large amounts of money during the 1980s developing high-cost sewing machines. Unfortunately, these machines found few buyers after 40 per cent of Europe's garment industry moved to Asia, where there was little need for the sophisticated equipment. Mr Ting said Pfaff's operating systems had also been overhauled, allowing it to shorten reporting and auditing periods and tighten control over inventory. As a result, Pfaff's annual meeting was brought forward from August to April. Semi-Tech's efforts at Pfaff have enhanced more than the bottom line - the investment community has started to look more favourably at the company. Pfaff's stock has more than doubled from 105 marks last June, to 250 marks at yesterday's close, boosting the value of Semi-Tech's investment to more than HK$1.1 billion. Pfaff also recently completed an 85 million Swiss franc (about HK456 million) convertible bond issue at 244.42 marks per share through Bankers Trust. ''Our return has been staggering and this is just the beginning,'' Mr Ting said. ''At one time, this company traded at more than 400 marks and there's no reason why, in a year or so with the results coming out, it can't trade at this level again.'' He said Semi-Tech also hoped to exploit the value of Pfaff's property interests in Germany, which had a book value of 10 million marks but a market value of more than 300 million marks. While Pfaff has captured most of the limelight, there have also been encouraging signs at 44 per cent owned Sansui, which now appears on the verge of becoming profitable after nine years of losses. For calendar 1993, Sansui's posted net income of 318 million yen (about HK$23.77 million) contrasted with a loss of $17.73 billion yen in 1992. The result included a 2.88 billion yen gain from property sales. Much of the recent improvement at Sansui has been a result of the transfer of production from Japan to plants in China owned by Tomei International Holdings, in which Semi-Tech and Mr Ting are major shareholders. Sansui has maintained a small manufacturing operation in Japan, which makes high-end stereo systems for audio buffs. Sansui's stock, which bottomed out at 161 yen in November, jumped to 383 yen just before the results for the 1993-94 financial year were released, and closed yesterday at 334 yen. Mr Ting said Semi-Tech's original US$35 million investment in Sansui was now worth $400 million. Aside from Mr Ting's reputation as a turnaround specialist, he has also attracted attention for wheeling and dealing of assets. Last June, the critics went on the offensive after Semi-Tech announced the sale of its 51 per cent stake in Singer to its Toronto-based parent, International Semi-Tech Microelectronics for $850 million. Analysts said the deal had left Semi-Tech and its shareholders with two loss-making businesses - Pfaff and Sansui - and questioned the company's long-term prospects. Mr Ting strongly defended the complex deal, claiming that analysts did not understand Semi-Tech and its management philosophy. The sales helped Semi-Tech's profits for the six months to July 31, 1993, jump 181 per cent to HK$2.13 billion, despite a $14.5 million decline in sales to $4.03 billion. The first-half profits included $2.03 billion from the sale of Singer. Semi-Tech releases its final 1993-94 results today. Last month, the company announced another round of transactions - the sale of manufacturing units in Indonesia, Turkey, Spain and China to Singer for US$27.5 million. Singer recently established a joint venture in Ho Chi Minh City, which will make household and industrial sewing machines for Singer and Pfaff, respectively, and consumer electronics for Sansui. Singer plans to open up to 100 stores in Vietnam over the next three to four years. It hopes to penetrate the market by offering a credit programme - a concept that had overwhelming success in China. Mr Ting said Singer was operating a total eight retail outlets in Guangzhou and Shanghai, and planned to open another 20 this year on the mainland. He said Singer's credit programme, which was begun earlier this year with 300 accounts as an experiment, had proven so popular that there would be 10,000 by the end of the year. Analyst coverage of Semi-Tech has been inconsistent. One of the few investment houses following the company is Standard Chartered Securities. In a recent report, it said Semi-Tech was trading at a 55 per cent discount to its net asset value of HK$32. It said that given the potential re-rating of Pfaff and Sansui, Semi-Tech's net asset value would increase to at least $45 in the next two years, giving the stock the potential to trade between $24 and $27. Semi-Tech closed yesterday at $15, 26.8 per cent below its peak of $20.50, reached after the Singer deal was announced last June. Semi-Tech paid a dividend of $3 a share after completion of the Singer deal.
