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Ta Yang Group Holdings

Silicone Rubber: the Next Big Thing?


From remote control keypads to cellphones to that gripping jacket on the wildly popular Wii, one Taiwan-based company is producing what makes the modern world click.



Silicone Rubber: the Next Big Thing?

By Jimmy Hsiung
From CommonWealth Magazine (vol. 408 )

As on most mornings, Kirk Yang, executive director and chief financial officer of Ta Yang Group Holdings Ltd., sets off early from his Hong Kong office as he prepares to drive to Shenzhen.

The drive is extremely familiar to Yang, one that he made many times in his previous jobs with Goldman Sachs, Credit Suisse and most recently with Citigroup Global Markets Asia as a top technology analyst. The companies he followed, including Hon Hai Precision, Acer, MiTAC, First International Computer, and Lite-On Technology, all have facilities in the area.

Poaching the Big Fish

He may be navigating the same road as always, but Yang today finds himself in a completely new world. In March 2008, he shocked foreign institutional investors and the technology industry when he announced he would be joining Ta Yang Group, a little-noticed company publicly listed in Hong Kong.

Anybody even only marginally familiar with the technology sector clearly recognized Yang's name. He was one of the most senior analysts of midstream and downstream technology sectors in foreign investment circles, his investment reports widely reputed for their thoroughness and foresight. Yang made a name for himself by consistently being the first among analysts at foreign investment institutions to release analytical reports on the hottest stocks.

Yet Yang, who counts many of the leaders of top high-technology companies as close friends, decided to cast his lot with a company that has annual revenues of US$100 million, a company that few investors in Taiwan, not to mention Hong Kong, even realized was set up by Taiwanese.

'Little Hon Hai'

In describing Ta Yong Group as a "little Hon Hai," Yang offers his unambiguous assessment of the company. Registered and headquartered in Hong Kong with factories scattered around the Dongguan area in Guangdong province, Ta Yang Holdings is introduced by Yang as the world's biggest supplier of silicone rubber keypads. It has a 40-percent share of the global remote control device keypad market and a 45-percent share of the notebook computer keypad market, and it overwhelmingly dominates the calculator market.

Now, Yang says, Ta Yang Group has begun to penetrate the mobile phone market, becoming the primary silicone rubber keypad supplier for the mobile phone models most recently introduced by the world's two biggest handset brands, Nokia and Motorola.    

Ta Yang Group also supplies a number of silicone rubber products found in daily life, such as the silicone "skin" cases for iPods and cell phones, ice cube trays, document jackets, and, the one Yang is most proud of, the Wii Jacket, the silicone rubber protective slip cover for the Wii remote. 

Yang explains that Ta Yang Group is leveraging silicone rubber as its vehicle of expansion in the same way that Hon Hai used the connector as the engine of its growth, only silicone rubber, he says, has even broader applications across more industries.

Just as when he unearthed stocks with potential, Yang's eyes shine with boundless optimism over Ta Yang's future as he discusses the company's considerable achievements. Indeed, those companies that earned Yang's recommendation in his reports were full of potential, and Ta Yang Group's ability to lure him is an indication of its potentially bright future.

Yang's dramatic career turn reflects the generational change taking place at Ta Yang Group, where its founders' successors have been looking to bring more dynamism to the company. Last September, Yang recalls, "I was thinking of finding some smaller technology companies that nobody knew about and were cheap." Always full of passion to unearth new stars during his career as an analyst and diligent in visiting companies, Yang decided to take a closer look at Ta Yang Group.

At the time, Yang did not have especially high expectations for Ta Yang Group's shares based on their performance. When Ta Yang Group listed in June 2007, its stock was offered at HK$3.5 a share. After briefly rising to HK$4, the share price tumbled to HK$2 per share, a fairly common phenomenon among Taiwanese-invested enterprises listed in Hong Kong, which have had trouble earning the favor of Hong Kong investors.

Consistent Double-digit Growth

After Yang gained a thorough understanding of Ta Yang Group, however, he was startled by its competitiveness. It was hard to imagine, Yang said, that an inconspicuous product like silicone rubber keypads had gross profit margins of 40 percent. Even in the second half of 2008, with the world facing economic recession and nearly 10 silicone rubber product factories having gone bankrupt in China, Ta Yang Group has been able to maintain a 30 percent gross margin, Yang observes.

Such impressive results had always flown under the radar since Ta Yang Group was founded in 1991. Under the conservative management style of the two Taiwanese now in their 50s who founded the company in 1991, Chairman Huang Sheng-shun and Executive Director and Chief Executive Officer Wu Ih Chen, the company has never sought to publicly hype its success.

Wu recalls that in the beginning, Ta Yang Group was one of the few sole proprietorship enterprises to set up in what is known as "Little Hong Kong" – Zhangmutou Town outside Dongguan City.

"I still remember we were the 77th sole proprietorship enterprise approved in Guangdong Province," Wu says.

At that time, when China was just launching its process of economic "reform and opening-up," and Guangdong was serving as the springboard, a company needed a lot of capital and excellent connections to obtain sole proprietorship status. That was not a problem for National Taiwan University College of Law graduate Huang, who was born into a family with considerable influence in Taiwan's chemical industry.

With sole proprietorship status in hand, Ta Yang Group positioned itself as offering "Taiwanese prices, Japanese quality, and Chinese manufacturing" to attract orders from prominent vendors such as Japan's Sanyo Electronics, Showa Precision, and Casio, Wu says. That formula delivered double-digit growth for Ta Yang Group every year until the SARS outbreak stifled economic activity in 2002.

The company's capacity grew steadily to support its sales growth. Wu says that although he faced plenty of hardship in the factory's early days training employees and improving its hygienic standards, moves to expand the facility's capacity never slowed down for even a day. Equipped with six machines at its inception, the factory had 500 machines by the time Ta Yang went public last year, Wu says with pride.

"Our capacity is now the biggest in the world," he boasts.

Today's Ta Yang Group has formed a strategic alliance with Japanese share-price king Shin-Etsu Polymer Co. Wu reveals that Shin-Etsu, the world's leading producer of silicone rubber, has subcontracted all of its orders from Motorola to Ta Yang Group.

As Wu explains these achievements, it becomes clear that the spotlessness of the Ta Yang Group facilities both inside and out, and the presence of Japanese executives coming and going there, are proof of their ability to form closely knit relationships with Japanese partners, transplanting Japanese management and technology into their own company, and even receiving their Japanese partners' orders.

New Infusion of Blood

Although few have been aware of Ta Yang Group's strong results in the past, the company in the last two years has brought in new blood, including the children of Huang and Wu, a new generation that will launch a different management style. 

Yang, in fact, joined Ta Yang Group after being wooed by its younger generation, and the company's many attributes.

"They weren't lacking in capital," Yang says laughing. In fact, when Ta Yang Group went public, it almost seems it did so because it was simply the thing to do. It surely did not need the capital injection. Much of the tens of millions of U.S. dollars raised in the public offering "were actually deposited in a savings account," Yang says with a tone of incredulity.

With Ta Yang Group's impressive profitability and cash reserves of at least US$60 million, Yang sees boundless opportunities in the future.

"From mergers with upstream and downstream companies and capacity expansion to the possibility of listing in Taiwan, there are too many things that can be done," Yang says with the restlessness of somebody impatient for action. This is not only the perfect symbol of Yang's career change, but also an expression of Taiwanese entrepreneurs' fighting spirit, as Ta Yang Group prepares to pass the baton from one generation to another.

Translated from the Chinese by Luke Sabatier

Chinese Version: 大洋集團 讓王牌分析師也跳槽