SGX Research Series 10-in-10: TrickleStar shines with energy-saving product portfolio; plans expansion beyond US and Canada

1. What notable developments can shareholders expect from TrickleStar for the rest of 2020 and into next year?

TrickleStar designs and supplies affordable, simple and easy-to-use energy-saving products to help consumers reduce energy consumption in their homes and workplaces. The group’s products are primarily purchased by electric utility companies, energy efficiency programmes, implementation contractors and energy auditors in the US.

We concluded 1H2020 with a net profit of US$507,000 ($688,021), a significant year-on-year improvement. Like many businesses, we faced challenges from Covid-19 and have been impacted by the US tariffs. However, our results thus far proved that the group has handled these challenges well.

We expect sales volumes to remain similar to last year and to maintain profitability for this year. We have a dividend policy of paying 50% of net profit (on various conditions), and we are optimistic on paying a dividend for 2020.

Since our IPO in June 2019, we have grown significantly: • Expanded product portfolio — received encouraging initial market feedback on our new products for 2021 Diversified manufacturing — added two new contract manufacturers Addressed tariff challenges — expanded manufacturing outside of China to minimise US tariffs

The group will be launching three major new products in early 2021. We believe that these products will diversify us from the single product category risk we faced and will underpin our growth strategy over the next 3 years.

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2. Describe the group’s revenue mix and profitability. What would you maintain or change in terms of this mix?

To date, TrickleStar’s primary product has been Advanced PowerStrips, which are only sold in the US and Canada. Our focus is to develop new energy saving products, which we believe are in demand globally, to expand our portfolio.

On top of the three new products (Wi-Fi Smart Thermostat, Wi-Fi Electric Water Heater Controller and DryerSaver) scheduled for phased launch beginning in early 2021, the group has several more new products in the pipeline too. We believe that these new products have significant barriers to entry as they include advanced “Internet of Things” functionality that cannot be easily replicated. We will also begin after-sale services for these products in late 2021, creating ongoing revenue streams.

The group will be expanding our geographical reach beyond the US and Canada. We expect the adoption of energy efficiency solutions to increase in several developed countries, which will be beneficial for TrickleStar as we aim to become an internationally recognised company for energy saving solutions.

3. What impact has Covid-19 had on TrickleStar’s operations? What measures have you put in place to ride out the pandemic?

The group has implemented several precautions to ensure that our staff are protected against Covid-19 risks. We are pleased to say that none of our employees have tested positive for Covid-19 and we will continue to monitor the safety and well-being of our people.

To minimise business disruptions, we set up cloud-based systems and equipped our staff with notebook computers. Our online collaboration tools, developed over the years, have proved invaluable during the lockdown period as well.

During the pandemic, manufacturing operations continued to run smoothly. Our decision to add new manufacturing sources was a bonus, as we now have facilities in Malaysia to meet production requirements when the plants in China shut down.

4. Why did TrickleStar move its manufacturing facilities from China to Malaysia? How has the move benefitted the group in 2020?

As our customers are mostly based in the US, the 25% US tariffs on goods manufactured in China was a huge burden to the group and we were unable to pass on the additional cost to our customers.

TrickleStar has successfully moved manufacturing to Malaysia and has been shipping from our new Malaysia facilities for close to eight months. We will continue to work with our Malaysian manufacturer to ensure product quality and reliability for our clients.

By avoiding the tariffs, we have seen an improvement in our gross margins and cash flow, which could ultimately benefit our shareholders in terms of dividend payments.

5. Since TrickleStar’s customer base is primarily in the US, are there plans to set up manufacturing facilities there?

The majority of TrickleStar’s products require hand assembly during the manufacturing process, and hence our workers must undergo intensive training. The group has to also ensure that sufficient labour, with the right skill sets, is available in the medium to long-term horizon.

Manufacturing in the US has transitioned away from manual labour in the last decade, and therefore would not allow for good shareholder returns. For this reason alone, we do not see the US as a viable option for manufacturing of cost sensitive products that require a high degree of manual labour. However, the group is considering US based manufacturing for some of our new products, which involve automated electronics assembly with minimal manual labour required.

6. Does the group have plans to expand its customer base beyond the US and Canada?

Although our core focus remains in the US, we are looking to diversify into other developed markets where customers are more aware of climate change concerns. Many of our new products are designed for sale in both the US as well as non-US markets, and the group is already seeing interest from distributors and partners globally. However, before we can appoint representatives in any new market, we have to ensure that our products comply with safety regulations in the country.

We are also working on new products which are not focused solely for US customers but will have worldwide application.

7. How has Covid-19 changed the demand landscape for energy efficient products?

With the onset of the pandemic, people are spending more time at home resulting in higher energy consumption. Therefore, concerns over energy waste and demand for energy efficient products have increased.

The main obstacle we are encountering now is the restricted access to residences during lockdowns, which delays product installation. However, we expect to see a significant boost in volumes when lockdowns are lifted. Looking ahead, we believe that the pandemic will shift consumers’ focus to energy saving solutions and demand for our products will grow as a result.

8. What do you think are the demand drivers for energy efficient products? How do you expect these drivers to evolve over time?

There are significant structural changes taking place in the global energy industry. Concerns about climate change and carbon emissions continue to influence legislation and drive the adoption of renewables, electric vehicles, battery storage, demand response and energy efficiency among electric utility firms. TrickleStar focuses on two areas: • Energy efficiency — often referred to as the “low hanging fruit” in the energy industry as it is easy to access and a return on investment (ROI) can be achieved in under two years. Demand Response — consumption of electricity is uneven throughout the day. Matching energy supply and energy demand allows for electric utility companies to build fewer power stations and incorporate more renewables (for example, wind and solar energy) into the electric grid. To do this, smart devices that can be turned on and off based on demand, such as the new IoT Smart Thermostat and Water Heater Controller by TrickleStar, are required. We see robust growth for energy efficiency and demand response products especially given growing concerns about carbon emissions and climate change.

9. What is TrickleStar’s value proposition to its shareholders and potential investors?

We are confident in the quality of our first product, the Advanced PowerStrip, as well as the new products that we are preparing to launch in 2021. These innovations, which come with cloud services and apps, have much higher barriers to entry than the Advanced PowerStrip.

Although our focus is in the US and Canada, we have cash resources on our balance sheet that allow us to develop new products and venture into new markets. We believe that TrickleStar is a strategic and resource-based company. With low overheads and outsourced manufacturing, we enjoy significant economies of scale and ensure that all our products are cash positive as soon as they are brought to market. Being in an industry that is relevant to the needs of the world and with positive cash flows, we believe that we have the talent and resources to achieve growth.

10. What do you think investors may have overlooked about TrickleStar’s business?

We believe that we have a solid foundation for future product and geographical expansion. The group has sufficient cash flow as we aim to be cash positive on all product sales and we have not capitalised our research and development expense on our balance sheet. The electric utility industry is largely driven by technical considerations, good product design and reliable customer support. We believe that TrickleStar is a recognised brand among these industry players with our established sales channels and track record of new innovations. We are confident of the speed and scale of TrickleStar’s growth once our new products gain traction.