CEO Conversations XXXVII: Tsung-Jung Huang, Chairman & CEO of SuperAlloy Industrial Co.,Ltd. (1563 TT)
Source: Business Today
Starting from Yunlin High-speed Railway Station, along the road windows reflecting the blue sky, white clouds and emerald fields, we arrived at SuperAlloy Industrial Co.,Ltd located in Yunlin Technology-based Industrial Park after 30 minutes. Chairman Huang Tsung-Jung smiled and led us into the conference room with the wall covered with forged wheels. Established in 1994, SuperAlloy started to manufacture forging wheels in 1999 and shipped more than 10 million wheels accumulatively to the world's top car brands over the past 20 years. The forged wheel wall displayed in front of our eyes as artistic masterpieces. Chairman Huang enthusiastically introduced the forged wheels developed exclusively by SuperAlloy for Porsche Electric Vehicles: "This is the 21-inch Taycan Exclusive Design wheel equipped with carbon fiber blades, the wheels weigh 14 kg each. The price of four optional wheels costed NT$500,000 in Taiwan. It is not easy to be a part of the Porsche supply chain. SuperAlloy finally became certified manufacturer after two years of factory certification. Through the new core aluminum forging, machining and painting technology, we can achieve mass production of this complex design, while taking into account the requirements of high strength and safety factors of lightweight forged aluminum wheel. Currently the battery accounts for 50% of the total weight of an electric vehicle, which makes the electric vehicle brands seek for lightweight solutions. SuperAlloy’s new forged wheels is fully in line with the requirement of the car makers. Currently, the revenue from electric vehicle accounts for about 10% of the wheel revenue. we believe the proportion will keep growing under the strong demand of electric vehicles globally.”
SuperAlloy's Competitive Advantages: Early Layout of Production Capacity Technology, Long-Term Customer Relationships and Operational Efficiency Improvement
Chairman Huang explained SuperAlloy's long-term competitive advantage: "SuperAlloy's competitive advantage is exercised bit by bit in the past 23 years of experience in forged aluminum wheel manufacturing. Our primary competitive advantage is the leading position in capacity construction and manufacturing technology. The three factories we own specialize in different types of production: Yunlin factory in the headquarter focuses on full machining, small-volume and large-variety forged aluminum wheels; the new factory in Pingtung has both full machining and highly automated mass production of net-shape forged aluminum wheels; and the German factory provides painting with a nearby service to our European customers.
We expect every cent we spend in capital expenditure can generate one dollar revenue in the future. Each growth cycle requires long-term investment to build sufficient forging, machining, polishing, painting and testing capacity. For example, we started to build our Pingtung factory with total capacity of one million units since 2016. We spent NT$6 billion in land, plant and phase I expansion (300,000 units capacity) and successively obtained certifications from BMW, Chrysler, Porsche and Toyota in 2020. We started delivery in 2021 after spending at least 5 years from plant building to mass production.
At present, the utilization rate of Yunlin Plant is 100% (700,000 units capacity totaled) and Pingtung Plant-Phase I is 50% (300,000 units capacity totaled). We expect the utilization rate of Pingtung Plant-Phase I will be fully loaded next year. We have started to plan the Phase II construction.”
Chairman Huang continued: "The second advantage comes from the long-term relationships we have established with our customers. The business between SuperAlloy and the supercar and luxury car brands starts from certification process that requires at least two years. The standards of obtaining original certification among supercars brands (such as Ferrari, McLaren, Porsche, Bentley, Rolls-Royce) and luxury car brands (such as Mercedes-Benz, BMW, Lexus) are quite different, also with detailed inspection in aluminum ingot, factory design, manufacturing process and environmental safety. We need to invest lots of time and resources to obtain certification from each brand, build a long-term relationship, and develop a 5 to 7 years product life cycles. Currently we have 42 cars brand customers globally. With our full machining and net shape forging solutions, we expect to get more global car brands’ certifications and build a long-term relationship with them in the future.”
When it comes to operational efficiency, Chairman Huang also said with assurance, “Operational efficiency improvement is another competitive advantage of SuperAlloy. SuperAlloy has accumulated more than 1,800 aluminum wheel design projects and each of them is unique.
In the wheel design stage, we provide optimized wheel design solutions to car brands through various alloy simulations and corresponding process parameters in the database, thus provide wheel design optimization services to make sure the wheel is well-designed before production. In the mass production stage of forging, machining and polishing processes, we increase the yield rate to over 97% before the painting stage through customized production equipment, core technologies of full machining and net shape forging. We also established automatic painting lines and warehouses in our Pingtung and German factories to accommodate the changes in customer demand rapidly. We expect to reinvest 3% of our revenue to R&D activities each year, in order to further optimize the manufacturing process and quality in our three factories. Like TSMC in the forged wheel industry, our original SAI Forging Platform combines production capacity, global customer relationships, operational efficiency and technological improvement to drive the company's long-term growth.”
SuperAlloy’s Growth Strategy: Catch up with Industrial Trends as well as Promote Economies of Scale and Green Circular Economy.
Looking into the future, Chairman Huang said with confidence, “SuperAlloy’s development strategy for the next five years will focus on economies of scale in forging and green circular economy. We believe the following two key trends in the global automotive industry will help SuperAlloy achieve its revenue CAGR target with double-digit. Firstly, the growth rate of the global luxury car is higher than the average growth rate of the global overall automobile. In the short term, the global automobile market is still in tight supply of semiconductors, and each brand will give priority to supplying high-end and high-profit models. The long-term global GDP trend is upward, which will continue to drive the growth of luxury car sales. The second trend is the implementation plan for the global carbon neutrality target. Many countries have successively announced the schedule of achieving their carbon neutrality target, Finland before 2035, Austria and Iceland before 2040, the EU, Canada, Japan, and the UK before 2050, and China before 2060 needs to achieve carbon neutrality. In the long term it will promote the introduction of more aluminum in global car brands and lightweight vehicles to reduce carbon emissions. On the other hand, automakers require suppliers to use more secondary aluminum since it can reduce carbon emissions by 95% compared to primary aluminum."
Chairman Huang further explained the implementation plan for the growth strategy, “As SuperAlloy is the global leader in the full machining forged wheels industry for supercars and luxury cars, additionally the net shape forged wheels have been shipped out since 2020, resulting in the increase of our serviceable available market by tenfold to US$4 billion. SuperAlloy will focus on deepening relationships with luxury car brands and explore opportunities for cooperation with more brands based on the technology and quality trusted by customers. In addition to the continuous increase in the penetration rate from new projects in European and American supercar and luxury car brands, the Japanese luxury car brands, with whom we have built relationship for years, have also placed more orders. SuperAlloy will benefit from it to achieve customer diversification and economies of scale. In response to the growing demand for forged wheels year by year, we will continue to expand the production capacity at Yunlin Plant and Pingtung Plant for full machining and net shape forging. With the capacity utilization rate of Pingtung Plant Phase I of 300,000 wheels per year continued to rise from 50%, and the 300,000 wheels production capacity per year respectively from Phase II and Phase III of Pingtung plant, we expect that the revenue contribution from net shape forged wheel to reach 30% in the next five years. SuperAlloy has delivered 10 million wheels during the past 20 years, and our goal is to achieve another 10 million wheels within the next ten years, consequently reduce fixed costs per unit and continue to drive overall economies of scale.”
“On the other hand, due to the impact of the pandemic, economic fluctuations in aluminum prices since last year, and coupled with the long-term carbon neutrality goals of various countries and car brands, the demand for secondary aluminum and wheels from major customers has increased significantly. To meet the needs, SuperAlloy’s recycled aluminum smelting furnace process in Pintung Plant which produces 40,000 tons annually, has successively passed various certifications. According to our estimation, aluminum accounts for about 30% of the manufacturing cost of a wheel. It takes 50 kg of aluminum to produce one aluminum wheel with an actual finished product weighs about 15 kg, which means that 70% of the tailings can be recycled through our own smelting process. Based on the increase in customer demand and the improvement of production efficiency, SuperAlloy plans to double the production capacity of recycled aluminum smelting furnaces. Hence, the proportion of secondary aluminum forged wheel will increase from 26% in 2021 to 50% in 2024, one year ahead of schedule to meet BMW's 2025 target of 50% secondary aluminum usage by suppliers. In addition, SuperAlloy spares no effort to carry out the green circular economy. The solar power installation capacity at Yunlin and Pingtung plants has reached 4,000KW. The electricity required by the recycled aluminum smelting furnaces can be supplied 100% by green energy. We set the goal that green power supply will account for 10% of the total electricity consumption of our plants in the future. In general, additionally to the sustainable growth of forged aluminum wheel shipments, the economic scale of net shape forged products and the green economy of recycled aluminum smelting furnaces will further enhance SuperAlloy's overall capacity utilization, driving long-term gross profit margins to over 25%.”
SuperAlloy's long-term goal: Pursue Sustainable Growth and Provide Stable Shareholder Returns
As the global automotive industry gradually overcomes the challenges brought by the pandemic, this year the impact of freight and exchange rate fluctuations on SuperAlloy has gradually eased. The verifications of Pingtung Plant from customers will be accelerated after the lift of COVID-19 restrictions, meanwhile the constructions of full machining as well as net shape forge capacity will continue to grow to supply the global customer demands, offering growth momentum for SuperAlloy’s mid- to long-term operation. Chairman Huang expressed his expectations for SuperAlloy in the post- pandemic era: "This year marks the 28th anniversary of SuperAlloy. We keep growing in the global automotive forging industry thanks to the efforts of all colleagues over the years and the support of global customers. SuperAlloy’s revenue in 2021 is NT$7.5 billion with an increase of 38% compared to 2020, which is close to the record high of NT$7.7 billion in 2016. It proves that our business, production, operation and finance are improved in the past five years. SuperAlloy will accumulate more resources for long-term growth, allocate capital with stable cash flow, invest 3% of total revenue to R&D and maintain at least 50% dividend payout rate each year.
In the next five years, we expect to achieve double-digit revenue CAGR and return on equity for long-term shareholders. SuperAlloy will continue to focus on optimizing production efficiency, promoting economies of scale and green circular economy. We also plan to apply for listing in 2023 and get introduced to long-term international investors.”
If you would like to arrange a meeting with the Chairman - Huang, Tsung-Jung, please contact yvonnehuang@qtumic.com.
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