Malaysia-based but Singapore-listed, TrickleStar designs and supplies energy-saving products. However, when the trade war between the US and China erupted in late 2018 and escalated throughout 2019, it too was caught in the crossfire like the many companies with a Trans-Pacific footprint.
At the time, TrickleStar had outsourced the manufacturing of its products to its contractor, Taiwan-listed Powertech Industrial, whose factories were located in China. This means that TrickleStar’s products, largely exported from China to the US, were affected by the tariffs.
Faced with customers who were not amenable to price hikes, TrickleStar decided to bite the bullet and absorb the entire impact of the 25% tariffs rather than passing the cost on to them.
Its margins were impacted significantly, especially in 2019 as the full brunt of the tariffs hit. The company’s gross profit margin for FY2019 ended December 2019 dropped to 26.7%, from 34.8% the year before.
Coupled with IPO expenses of US$1.12 million ($1.5 million), TrickleStar’s earnings for the year fell from US$1.96 million in 2018 to US$0.18 million.
The company took a hit to its bottom line but maintains it was the right move for the long run. “I believe our decision to deal with the impact of tariffs by avoiding a price increase was entirely justified,” says executive chairman and CEO Bernard Emby in the company’s 2019 annual report.
He adds that TrickleStar was able to both grow its sales and gain market share, as customers “greatly appreciated” its willingness to work together without changing terms throughout the uncertainty of the trade war.
For example, instead of losing sales, TrickleStar recorded a 5% y-o-y increase in unit sales of advanced power strips (APS) — its mainstay product type. APS helps reduce the amount of standby power used when devices are turned off, thus saving electricity and money. TrickleStar also makes surge protectors, load controllers, energy monitors and energy meters.
The company positions its products as “affordable premium” offerings that have high quality but without the expensive price tag, thanks to its Asian-based manufacturing that allows for cost-savings. “From a functional perspective, [they are] really great products [that are] safe, well-manufactured, high-quality products, but they’re priced affordably,” Emby says.
TrickleStar focuses mainly on business-to-business sales. Its customers comprise utility companies, contractors, and energy auditors looking to fulfil energy-efficiency programmes mandated by the US government in which a small percentage of ratepayers’ bills are pooled into a fund used to promote energy efficiency measures.
In the face of the external challenges, Emby did not just sit idle. In 2019, the company started shifting its manufacturing, in large part, to Malaysia. Its first tariff-free products from Malaysia were exported to the US in January last year.
Emby says that around 75% of its products are now produced there.
In the midst of all this, TrickleStar listed on the Catalist board of the Singapore Exchange in June 2019. It was aiming for FY2020 to be a fresh slate from which it can draw on funds raised from the IPO to fuel the next growth phase.
But then, Covid-19 happened. More than half of TrickleStar’s sales were driven by home inspections conducted by utility companies and energy auditors who directly install energy-saving products. As lockdowns were enforced during the pandemic, TrickleStar’s sales from this channel dropped.
“We had a record first quarter, and we were on track for a very strong year until Covid hit and then basically what happened was all of the home energy audits were suspended,” Emby tells The Edge Singapore. “Obviously, you didn’t want contractors coming into people’s homes because of Covid. So that was a big challenge for us”.
TrickleStar’s FY2020 revenue dipped 11.5% y-o-y to US$12.85 million. But Emby says that with vaccines being rolled out and as the industry adjusts to the new normal, home energy audits are scaling back up again, and he is optimistic that business will get back to pre-Covid levels.
Despite the lower revenue, TrickleStar’s earnings for FY2020 rebounded from US$0.18 million to US$0.71 million, given the absence of IPO expenses. The company declared a final dividend of 0.45 US cents per ordinary share for the period, its first since listing.
The earnings improvement has been reflected in TrickleStar’s share price. From the IPO price of 26 cents back in June 2019, it closed at 33 cents on March 23, valuing the company at $27.14 million.
The struggles of the past couple of years has not swayed TrickleStar’s overall business direction. Emby believes that the US market is still the one to target, given its size and acceptance of products offered by TrickleStar. “We wanted to target the biggest, most developed market to give ourselves the best market potential,” he explains.
To stay ahead, the company is constantly finding ways to improve its product offerings with either more price competitive models such as a new APS selling under a new PlugLoad brand, or by introducing new products such as an energy-saving device targeted for electric clothes dryers.
However, Emby has his sights on a much bigger, newer addressable market of so-called “connected products” that can be controlled via smart devices. The company has launched two new connected products — a smart thermostat and an electric water heater controller. Users of the products are able to access a TrickleStar portal and app that allows them to adjust settings and temperatures from their mobile devices, as well as monitor energy usage.
Emby says that the decision to venture into connected products was based on a clear market opportunity, noting that four million smart thermostats are sold annually in the US, while there are 40 million electric resistant water heaters that could potentially be retrofitted with smart controllers.
The products are already sold or are ideal candidates for energy efficiency programs, and Emby believes that TrickleStar’s existing reputation within the space combined with its attractive pricing makes it well-positioned to crack the market.
TrickleStar views the new segment as a key growth platform for the business. While more challenging and complicated to develop than its “standalone” products like APS, Emby says the payoff lies in the higher barriers to entry that make the products more resilient to margin compression and downward price pressure. “We want to make sure that some of these products that we’re going into will have longevity where we can maintain margins sustainably for a longer period”.
He also adds that the new administration under President Joe Biden is revitalising the US energy efficiency landscape, which bodes well for the company. “At a macro level, it’s a very exciting time for us. We’re starting to see federal and state programmes getting a lot more funding and attention than they were getting during the previous administration, so that’s very encouraging”.
While confident that the new connected products will grow the company’s earnings, Emby is cautious on how significant that contribution will be for FY2021, acknowledging that it takes time to introduce new products to the market. He adds: “We’re hopeful that next year will be material to our numbers. If all goes well, [they might be material] possibly this year”.