Cosmos Bets RM16.5M on Local Manufacturing Control

Delivery times of seven or eight months. Currency rates that swing. For Cosmos Technology International Bhd, relying on overseas suppliers came at a cost, and those pressures have pushed the company to buy its way into manufacturing. Cosmos is proposing to acquire a 51% stake in electronic manufacturing services firm Orisystems Opto Sdn Bhd for RM16.52 million, paid entirely in new shares.

Managing director Datuk Chong Toh Wee told StarBiz that the goal is to strengthen product development and manufacturing while shielding the company from supply-chain uncertainties. He spoke on the sidelines of Cosmos' annual general meeting the previous day. Cosmos had considered Orisystems for about one and a half years, Chong said, before deciding its technical capabilities and expertise would complement Cosmos' business.

What Orisystems Brings

Orisystems makes electronics, including semiconductor-related components, chip-on-board technology for LED modules, smart-card modules and electronic components for aerospace applications. It hasn't made products for the water sector before. Still, the two companies have started working together on product design and development, and they're testing prototypes.

The work remains at an early stage. "Proof-of-concept has yet to be completed," Chong said. Cosmos is considering selling finished products locally under its own name. Chong argued that electronic manufacturing services share similar fundamentals across industries, and that "the difference is only the product range." Orisystems, meanwhile, sees the water sector as a growth opportunity amid potential projects.

The Deal Terms

The indicative purchase consideration of RM16.524 million will be paid in full with 33.048 million new Cosmos shares, priced at 50 sen each. That's a 27.71% premium over Cosmos' five-day volume-weighted average market price of 39.15 sen through October 16. Cosmos shares closed five sen lower at 37 sen the previous day, while the stock traded at a historical price-to-earnings ratio of 96.05 times.

The agreement includes a profit guarantee. Orisystems must earn at least RM3.6 million after tax in each financial year ending December 31, 2027, 2028 and 2029, and at least RM10.8 million cumulatively over the three years. That offers Cosmos' existing shareholders some protection: the price paid depends on the target delivering.

Shared Risk, Shared Upside

Before Orisystems' shareholders agreed to the offer, Chong said, he laid out Cosmos' future prospects, including potential jobs, market share and government allocations. He called the 50-sen price low given Cosmos' growth potential, adding that higher revenue and a lower price-to-earnings ratio could justify a higher price. He said the sellers' decision to accept despite uncertainty over whether Cosmos can realize that potential signals trust in the company.

He also explained why he chose shares instead of cash or a mix. "If Orisystems takes cash, it is a one-off transaction. But if they hold our shares, when Cosmos grows, they also grow with us," he said. "This is about building a long-term relationship."

Why This Matters: Long overseas delivery times and currency swings have pushed Cosmos toward building domestic production capacity, while Chong says he also pitched sellers on jobs and market share. The all-share structure, alongside a three-year profit guarantee, ties the sellers' returns to Cosmos' performance rather than a single payout. Yet the water-sector products haven't cleared proof-of-concept, and a price-to-earnings ratio above 96 means expectations are high. Whether the promised jobs and government-linked projects materialize remains the real test for workers and shareholders alike.