Deswell Industries Inc. will use funds raised from its first public stock offering to buy equipment for its injection molding operation in southern China. On July 19 the holding company plans to raise about $7.19 million by selling 1 million common shares and 1 million warrants, according to Joe Sciarra, spokesman for Joseph Charles & Associates Inc. of West Palm Beach, an underwriter for the offering. The price will be set July 18, he said. The shares will be traded on Nasdaq.
Deswell plans to invest $4.25 million in injection molding equipment and new tooling for its Jetcrown Industrial (Shenzhen) Ltd. subsidiary in Shenzhen, according to its prospectus dated June 19. The prospectus did not disclose specifics on what new equipment the company will add there.
Injection molding is Deswell's mainstay, making up $13.8 million, or nearly 66 percent, of its $21 million in total sales for the year ended March 31, the prospectus said. Deswell's secondary business is contract electronic manufacturing and assembly, through Kwanasia Electronic Co. Ltd., in which it owns a 51 percent interest. Kwanasia will receive about $1.9 million of the securities sale for equipment. The $1 million-plus balance will be channeled into general corporate purposes and working capital to support growth, the prospectus said.
At its 118,000-square-foot, leased plant in Shenzhen, Jetcrown operates 97 presses with clamping forces of 50-850 tons -though the majority of those fall between 80 and 100 tons. It molds consumer and industrial plastics products for original equipment makers, including casings for calculators, photocopy machines and flashlights; telephones; pagers; alarm clocks; fishing rods; and toner cartridges. The molding unit uses 4 million pounds of resin, primarily ABS, from suppliers in the United States, Japan and Taiwan.
Jetcrown offers mold design and building, as well as silk-screen and pad printing. Toolroom equipment includes eight electric discharge machines and three computer numerically controlled milling machines.
It employs about 760 Chinese workers, who live in nearby dormitories, since transportation generally is unavailable. The firm runs around-the clock, seven days a week. The country's low labor costs contribute to profitability.
Jetcrown has been operating in China since 1990.
Kwanasia operates two subsidiaries: Kwanasia (China) Co. Ltd. and Bright Ace Ltd. Its contract electronic manufacturing is conducted through a venture with Chinese partner Commercial Trading Corp., called Shenzhen Kwanam Electronics Co. Ltd.
Deswell has been incorporated as a limited liability international business firm in the British Virgin Islands since Dec. 2, 1993. Administrative and sales offices are in Hong Kong, and employ 26. Its Chinese facilities, all leased, are about 50 miles from Hong Kong.
Those sites offer the company low overhead and labor rates, and a supply of electricity from Hong Kong, the prospectus said.
Currently the company's three largest customers are Mita Industries (H.K.) Ltd.; Nam Tai Electronics (Shenzhen) Ltd.; and Inter-Tel Inc., with sales to those firms representing roughly 24 percent, 21 percent and 11 percent, respectively, of Deswell's total sales.
Nam Tai, based in Hong Kong, currently owns 14 percent of Deswell stock, which it bought in December for about $3.93 million to ensure a steady supply of ``competitively priced'' components used in its manufacture of business machines and electronic products, according to its financial statement for fiscal 1994, ended Dec. 31.
Nam Tai is the only selling shareholder in the stock offering, giving the underwriters - Joseph Charles of West Palm Beach and Barington Capital Group L.P. of New York - a 45-day option to buy 75,000 shares of its Deswell stock. After the sale, Nam Tai's interest may drop to about 9 percent.
Nam Tai, also incorporated in the British Virgin Islands, operates out of a 200,000-square-foot plant in Shenzhen.
Southern China was Deswell's biggest regional market last year. For fiscal 1995, ended March 31, sales comprised $7.9 million to foreign investors in Southern China; $6.9 million to Hong Kong; $2.6 million to the United States; and $1.8 each to Europe and Taiwan. In fact, Deswell has seen significant sales growth, from $9.28 million to $16.2 million, to $21 million during the past three fiscal years. Profit rose during that same period from $2.29 million to $4.01 million, between 1993 and 1995. Majority stockholders are Deswell executives Richard Lau (chairman and chief executive officer), C.P. Li and C.W.Leung. Together, after the offering, they will hold about 66 percent interest in the firm.