Cosmos Bets RM16.5M on Own Manufacturing Capacity

Cosmos Technology International Bhd wants to end its reliance on overseas suppliers. The company has proposed buying a 51% stake in electronic manufacturing services firm Orisystems Opto Sdn Bhd for RM16.52 million, paid entirely in new Cosmos shares.

Managing director Datuk Chong Toh Wee gave a straightforward reason. Cosmos has faced currency swings and delivery times of up to seven or eight months for products sourced abroad. He said building its own assembly and manufacturing capability is the answer. He spoke to StarBiz on the sidelines of the company's annual general meeting the previous day.

The Deal Structure

The indicative purchase consideration of RM16.524 million will be paid through 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.

Investors weren't impressed. Cosmos ended the session five sen lower at 37 sen the previous day, well below the issue price. The stock traded at a historical price-to-earnings ratio of 96.05 times.

Chong dismissed the concern. He viewed the 50-sen price as low given Cosmos' growth potential, and said a higher price could be justified as revenue rose and the price-to-earnings ratio fell. He also saw the Orisystems shareholders' willingness to accept the offer, despite uncertainty about whether Cosmos could realize that potential, as a sign of trust in the company.

Why pay with shares rather than cash? Chong said he wanted both sides to share in Cosmos' future growth. "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." The arrangement keeps cash in the company while linking the sellers' fortunes to the buyer's performance.

Performance Guarantees

The deal doesn't rely on goodwill alone. Orisystems must earn at least RM3.6 million after tax in each financial year ending December 31, 2027, 2028 and 2029. Across the three years, the cumulative floor is RM10.8 million. If Orisystems delivers, Cosmos gets what it paid for. The sellers will hold Cosmos stock, giving them every reason to make the deal work.

Capabilities and Open Questions

Orisystems manufactures electronics, including semiconductor-related components, chip-on-board technology for LED modules, smart-card modules and electronic components for aerospace applications. Cosmos spent about one and a half years assessing the firm before moving ahead, and Chong said its technical capabilities and expertise would complement Cosmos' business.

One gap remains. Orisystems has never made products for the water sector. The two companies have started working together on product design and development, and they have produced prototypes that are undergoing testing. But "proof-of-concept has yet to be completed," Chong acknowledged. Cosmos is considering selling the products locally under its own brand.

Chong argued the gap is smaller than it appears. The fundamental principles of electronic manufacturing services are similar across industries, he said, and "the difference is only the product range." Orisystems sees the water sector as a growth opportunity amid potential projects. Chong said he pitched Orisystems' shareholders on Cosmos' prospects, including potential jobs, market share and government allocations, before they agreed.

Why This Matters:

A private company is addressing its own supply-chain problem through its own capital structure, rather than waiting for a government fix. Cosmos is trading balance-sheet cash for equity, while the profit guarantee backs Orisystems' promises with real money. Those are market disciplines at work.

The numbers still deserve scrutiny. Cosmos will issue shares at a premium to market, yet the stock closed below that price with a 96.05 times earnings multiple. Existing shareholders will watch to see whether the water-sector prototypes clear proof-of-concept and whether the guaranteed profits arrive on schedule. Vertical integration can shield a firm from currency swings and seven-month delivery waits. It can also bring new operational risks for management. The 2027 through 2029 targets will show which outcome followed.