CEO Conversations XVII: Chin-Yuan Wu, Chairman, Sanyang Motor Co., Ltd. (2206 TT) and Taiwan Tea Corporation (2913 TT)
As soon as we walk into the conference room, Chairman Chin-Yuan Wu, stands up and shakes hands with us. He has a well-tanned face, shiny silver hair and piercing eyes; and his grip is firm and welcoming. We instantly feel his energy and resolve.
When talking about the two public companies he leads, he smiles with satisfaction and excitement, as if talking about his two children, "My plans for Sanyang and Taiwan Tea are the same in principle. Focus on the core business first and foremost. Second, expand the scope of our operations to businesses related to our core, and then apply the best and highest use to our land and property. As we enhance our execution in each of these three areas, we will launch a continuous feedback loop of value creation for our shareholders."
Resurrecting the core business
Chairman Wu started his career as an entrepreneur in the land development business, and he is known to have the Midas Touch when it comes to land acquisition and development. His initial investment in Sanyang originated from his desire to make good use of cash generated from his development business. Sanyang Motor was Taiwan’s first local producer of motorcycles and scooters, was at one time the island’s number one brand. After being elected to Sanyang’s Board of Directors in 2011, Chairman Wu soon began to realize that the company was in dire straits. Its product line was in a state of disarray, as the company had no premium offerings, yet struggled to compete with its peers in mid-to-low end scooters. Quality issues plagued the company’s products – both the bikes and replacement parts – and after sales service was poor. As a result, market share was in free fall. But, Chairman Wu, who has a degree in Mechanical Engineering from the National Taipei University of Technology, is no stranger to industrial manufacturing. As soon as he became Vice Chairman of the board in 2014, he formulated three three-year plans for Sanyang to get the company back on track.
"After gaining an in-depth understanding of Sanyang, I found that the situation was worse than I thought. We received complaints about the lack of flagship models from distributors. There was absolutely no esprit de corps and little cohesiveness throughout top management and down to the grass roots operation level; and we had huge inventories of unsold bikes in the warehouse," Chairman Wu recalls. "It was hard to believe that a company which was once the number one brand in Taiwan could have fallen so far so fast, to the point where it was about to be shaken out of the market."
“I felt that the first step should be to re-establish the faith of rank-and-file employees in the company’s viability. I needed to set the tone for the company and let everyone know that I was serious about bringing Sanyang back to #1. So, I arrived at the office at 7 o'clock sharp every morning, and worked 12 hours a day. I also ensured that the employee pension plan was fully funded to let employees know that they would be taken care of.”
Chairman Wu continues, “The second step was to rebuild Sanyang’s brand. Sanyang is a time-honored brand, but after years of mis-management, the product simply was not meeting market expectations. So, I focused on product development, with a view to improving the quality of mainstream mid- and low-end models.”
In Taiwan's motorcycle industry, vehicle sales and after-sales service are bundled together in the channel, and dealers are responsible for after-sales service in addition to sales. As we ask a dealer, what he thinks about Sanyang’s product, he immediately gives us the thumbs up sign, and exclaims, "Sanyang is really great now! The quality of Sanyang scooters was very poor before, but since the new management team took over, the performance of the scooters and motorcycles has greatly improved. More importantly, the quality of the bike’s parts and key components far surpasses that of competitors. Since we are fixing other bike brands as well, we can tell as soon as we take the bike apart. The best electronic controllers are now used in Sangyang’s bikes, from low-end to high-end models. And every model is in compliance with Taiwan’s current emissions standards, which is equivalent to Euro 5. Sanyang’s motorcycles now look better, are more comfortable to ride, and are easy to maintain. Our customers are very satisfied.” The owner then shows me a DRG (Dragon), Sanyang's newly launched high-end model, and a JET, which has won the Taiwan MotoGP. "I bought these two for myself,” he says, “They are not for sale."
Currently, six years after beginning the turnaround process, Sanyang's customer satisfaction ratings and market share have both improved tremendously, and the morale of production line workers and distributors is higher than it has been in many years. In December 2020, Sanyang's Taiwan market share reached 32.2%, only 3.5 percentage points behind KYMCO, the current market share leader. The scale of Sanyang’s resurgence is nothing short of remarkable. When Mr. Wu was first elected Vice Chairman back in 2014, Kymco’s market share exceeded that of Sanyang by 36 percentage points.
"Sanyang was Taiwan’s first motorcycle producer. And there is still an immense amount of good will towards this formerly No. 1 brand. We are confident that we can again make it the No. 1 brand in the hearts and minds of Taiwan’s motorcycle enthusiasts,” says Chairman Wu confidently.
Although Taiwan has the highest density of scooters in the world, its population is only 23.6 million. “If we are going to push Sanyang to another level, the Taiwan market is not enough.” Says Chairman Wu. Sanyang has manufacturing facilities in Vietnam and Xiamen, which complement the manufacturing capabilities of the Hsinchu (Taiwan) plant. “At our corporate headquarters in Hsinchu, we coordinate production amongst the 3 sites; exporting high, medium and low-end models, to Europe, China, and ASEAN countries. There are 50 million motorcycles sold worldwide each year and Sanyang currently exports 200,000 bikes annually. So, there is considerable room for improvement. We aim to triple our overseas sales within five years, via sales of Sanyang-branded bikes and through OEM manufacturing for other brands.”
Expanding into related business segments to create shareholder value
The trend towards electric scooters and motorcycles has picked up momentum in Taiwan over the past few years. GOGORO and KYMCO, with its Ionex series, have been the most aggressive in this respect. Chairman Wu’s strategy is deeper and broader, “If you enter the market with an eye to gain market share, but without control of the core battery technology and infrastructure, then you are just blindly burning shareholders' money,” says Chairman Wu, “That, I would never do. Instead, we have chosen strategic alliances and co-development of alternative battery solutions. We are cooperating with China Petroleum Corporation (CPC) to develop lithium ternary plus batteries. By leveraging CPC's 2,000+ gas stations in Taiwan, and the high energy density and high performance of the lithium ternary plus battery, we aim to seize market share in high-end scooters. Secondly, we are cooperating with APh ePOWER to develop Aluminium-ion batteries. Aluminium-ion batteries have the following advantages – an outstanding safety profile, more environmentally-friendly, quick re-charge, high energy discharge and long battery life. In the future, they may replace lead-acid batteries and could also be a good fit for energy storage facilities.”
"Our battery technologies can be used in power generation and storage facilities as well as in electric scooters and motorcycles. We have advanced technical design and manufacturing capability for motorcycle frames and electric motors. So, the technical leap from internal-combustion powered cycles to battery-powered bikes is not at all difficult. If we can successfully build a complete ecosystem that incorporates both upstream and downstream into an integrated battery and exchange station solution, then the power business may become our second revenue stream.” Chairman Wu leans in closely and says earnestly, "We are not worried about entering the electric motorcycle market later than our peers. What’s more important is to have the right strategy to create long-term value for our shareholders.”
Revitalization of land and property
Revitalization of fixed assets is the 3rd strategic revenue stream in Chairman Wu’s master plan, "There are many venerable, long-established companies in Taiwan that can no longer make money from their core business and have instead begun selling their valuable landholdings in order to pay dividends to satisfy their shareholders. I don’t see this as a viable long-term strategy. I prefer to create a sustainable stream of cash flows by revitalizing assets. To achieve that, there are two prerequisites: first, the core business of the company must be profitable, as I have emphasized many times. If one cannot make money from the core business but instead seeks to achieve profitability by selling land and property, that is speculation rather than running a business. Secondly, if there really are land assets on hand that can be revitalized and have a higher and better use, then the proceeds from land sales should not be distributed to shareholders; they should be reinvested in the core business to make it stronger. Better yet, if the land has development potential, then the company should reinvest in it to create sustained cash flows."
Brief talk about Taiwan Tea Corporation
Though the focus of our conversation is Sanyang Motor, Chairman Wu segues into a brief discussion about Taiwan Tea Corporation, another company which he leads. "My view of Taiwan Tea is very similar to that of Sanyang. Taiwan Tea Corporation is the second largest landowner in Taiwan. In the past, Taiwan Tea sold land and distributed dividends to shareholders, due to a lack of core business earnings. What a pity! Under my leadership, Taiwan Tea has very specific goals. These are to achieve consistent core business profitability by becoming the top supplier in Taiwan and commanding at least a 7% share of the local tea market. Secondly, we have many tea plantations and land in beautiful mountainous areas with great potential for tourism and leisure. Tourism and leisure will be the second revenue and profit stream. Finally, Taiwan Tea’s land should not be sold, but should be revitalized through reinvestment, so as to maximize the value of the land. I am confident that Taiwan Tea’s century-old brand, like Sanyang, will be able to regain its luster, so that people will give Taiwan Tea a thumbs-up when they mention it. Taiwan Tea Corporation will become a role model in the Taiwan capital market.”
Outstanding performance
Chairman Wu has now been involved in the operations of Sanyang Motor for nearly seven years. In that time, he has helped to resurrect Sanyang's corporate culture and has engineered a stunning turnaround in the company’s core business. Witness the following – Sanyang’s market share reached 32.2% in December 2020, 12.7 percentage points ahead of Yamaha, which holds the No. 3 position in the Taiwan market. Revenue growth has returned and in 2020 Sanyang’s revenues hit a record high NT$40.8 billion. Gross margin reached 19.1% in 2020, a far cry from its level of 12.7% in 2014. Meanwhile, an improved product mix, higher sales turnover and better inventory control have all contributed to shorten the cash conversion cycle to 42 days in 2020 from 115 days in 2015. If Chairman Wu has his way, this turnaround will be replicated at Taiwan Tea. Mr. Wu was elected as the Chairman of Taiwan Tea in 2019. Already in 2020, revenue growth reached 4.3% YoY and the company’s net loss shrunk to NT$0.02 per share from $0.18 per share in 2019. All 452 acres at the Laupi Tea Factory are now fully planted, and the necessary investments in wilting, oxidizing, fixating, rolling, drying and sorting the tea have been made. Chairman Wu’s goal is to quadruple Taiwan Tea’s total production of tea within the next five years, further solidifying its position as Taiwan’s top producer of tea.
Says Chairman Wu, “We are in the early stages of the turnaround at both Sanyang and Taiwan Tea. My ultimate goal is to create a culture and SOP that enables both companies to maximize value creation over the long term.”
If you would like to arrange a meeting with Sanyang’s Chairman, Chin-Yuan Wu, please contact yvonnehuang@qtumic.com.
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