Risk Factor

Dependence on client risks
Risks of dependence on government sector clients

Major clients of the Company and its subsidiaries in government sector include the electricity-related agencies such as the Provincial Electricity Authority, the Metropolitan Electricity Authority and the Electricity Generating Authority of Thailand. The revenue from sales to these customers is based on the governmentûs budget for the development of production capacity and supply. If there is a change of the cabinet that results in alteration of electricity investment policy or any delay in approval of procurement for various projects, the Companyûs revenue in relation to these clients may be affected. Moreover, procurement processes of the government agencies are carried out mostly by competitive bids that sometimes involve many bidders. If the Company does not win the bids, it will lose revenue from these clients.

Investment in electricity capacity development and supply is regarded as investment in basic public infrastructure that grows continually. In times of economic expansion, the government sector needs to expand its public utilities to support the national growth and the increase of population and households. On the contrary, in times of economic slowdown, the government sector usually uses the public investment in infrastructure as a mechanism to stimulate economic recovery. So it can be said that the risks arising from the change of investment policy in the government power sector is quite low. As for the bids for government projects, they tend to be carried out separately according to product groups. The Companyûs products are not only of great variety, but also accredited by ISO 9001 quality standards. Many of them are registered with the Ministry of Industry as well as guaranteed by the tests of independent institutes, both domestically and internationally. Some of its products are certified by the Office of Industrial Standards (TIS) as well. The Company is therefore at an advantage when competing in bids for supply of products to the government agencies and state enterprises, which generally promote and encourage the procurement of products accredited and certified by the Ministry of Industry. For this reason, the risk that the Company may not be selected in a project bid of any type is low as well.

Risk of dependence on large clients

In 2015, the company sold products to approximately PEA offices in different areas for the value of 310.25 million baht or equal to 6.96% of the company's sale income according to consolidated financial statements.

Major customers of the company are regular customers who have maintained contact and business with the company for a long time and have a good relationship. Maintaining good standards of goods and services quality for over 30 years, the company is confident that it will continue to gain trust of customers. However, the company has a policy to reduce risk of dependence on any particular customer in each market, by constantly seeking new customers in order to expand customer base and to create more business opportunities and development of new products such as development of energy-saving LED light bulbs for distribution to the government sector and private sector, the LED lamps classified under the consumer products with a high market value. The lighting products are available in all buildings. Also, it is a product that has been promoted by the government for purchasing to replace instead of the traditional lamp that uses more electricity or power.

Risk of dependence on revenue from Myanmar

In due mainly to the change of procurement policy from using foreign currencies to Myanmar currency (Kyatt) and not to be direct business partner with Myanmar government. The company considers that procurement according to this new policy has a risk of payment and exchange rate uncertainty of Kyat, which is highly volatile. Therefore, the Group undertakes businesses carefully by focusing on projects due directly with the government under foreign currency deals only. However, after the elections, and during the transition of power making projects delays. In most cases, to wait for the government done.

In order to reduce dependence on revenue from Myanmar, the Group has a policy of market expansion into neighboring countries, such as Lao PDR, Vietnam, Cambodia and Malaysia. Moreover, the Group has a policy to undertake the business of power generation from renewable energy sources and the business of power plant construction, both in Myanmar and Thailand. In this regard, the Group gains the trust of Myanmar government and is thus assigned to conduct a feasibility study of wind power development project. So, the Group believes that its policy can reduce the risk of dependence on revenue from Myanmar.

However, the Group has a policy to prevent risk of dependence on any particular customer, by expanding customer base in public and private sector clients, including in export segment in order to soften the impact of possible decrease of purchase orders from any segment. The proportion of goods sold to each segment would vary from period to period. The company would consider factors that might affect order placements of each segment, such as electricity budget, related industrial circumstance and economic situation of Thailand and of customer countries, etc., in order to set an appropriate marketing policy for conditions in each period of time. For example, when the budget approval of government sector is slow, orders from customers in this sector will drop, and the Group will maintain its revenue size by focusing more on private sector and oversea clients. On the other hand, when private sector decreases investment, the Group will have orders from oversea customers and also government sector customers who use their budget to stimulate the economy. Therefore, diversification of customer segments can reduce risk of dependence on any single customer group, enabling the Group to maintain revenue scale in each period of time.