We visited Nico Steel two plants in Suzhou China. The first plant was the metal slitting, shearing, polishing and levelling facility. The 2nd plant was an electroplating facility.

Company Background

Nico Steel (Nico) was founded in 1991. It was listed on Catalist/Sesdaq in 2005 and transferred to the Mainboard in 2009. Nico provides customised metal material to the electronics industry. In 2000, it expanded outside Singapore to set up operations in China. In 2007, Nico began operations in Thailand. After several years of investments, we believe Nico has transitioned from commodity metals to customised metal alloys for the electronics industry. Nico’s significant customers are in the smartphone industry (trillion dollar market cap company), tablet PC (world largest software company by revenue) and drones (world largest drone manufacturer). Nico has factories located in Singapore, China and Thailand. More details in 1Oct 2018 report.

Share Price Drivers

Nico typically has 20 projects at various stages of development. We believe, the three key projects are the following:

1. LED panel. This is a customised aluminium and magnesium alloy metal (called AL50) that holds and dissipates heat for the LED module of 13 inch and below monitors. Purpose of the metal is to hold the module and disperse heat. The metal is sold to notebooks, tablets and monitor makers. The present customer is to a Korean LED maker and another potential will be the Chinese and Taiwanese producers. There is an existing competitor from Japan but Nico offers cheaper price and better features (e.g. flatness, weight and thickness of 0.10/0.15mm).
2. Thermal Fin. Purpose of a thermal fin is to collect heat from various components (especially the CPU) on a PCB. The fan inside the computer will then blow air over this particular fin to disperse the heat. The thickness of this copper-silver material (CA2) is less than 0.1mm. Such a solution is for mid to high-end The present customer is an international Chinese brand and Nico hopes to expand its customer base with its proprietary copper alloy metal (CA2).
3. RF shield cover for tablets. The metal that is used to cover active components on the PCB of a tablet PC. It is an aluminium alloy that is coated with a polymer of nano carbon The present customer is from the U.S.

On a separate note, the 16,666 sqm metal slitting plant on 68 Yinshan Road Wuzhong Economic Development Zone was purchased in 2003. Since then, several surrounding factories have turned into residential developments. Moreover, approximately 600 metres away is a subway station.

Outlook

From our visit, we realise the three competitive strengths of the company:

1) Company’s capability and relationship with metal mills to continually create and test new metal alloys and formulas;

2) Direct relationship with branded customer product development teams that can enable Nico’s products to be spec-in early into new mobile devices;

3) After 16 years in Suzhou, the company is plugged into the whole metal stamping and contract manufacturing supply chain to understand their evolving needs and challenges.

The underlying trend for more customised metal from Nico is because smaller and lighter devices require sturdier and thinner metal and faster device speed results in more heat generated.

Other highlights

ODM vs OEM refresher. In a tablet project, the design will be from the brand owner. If an ODM model is chosen, this party or contract manufacturer will have the authority to purchase and select the components and suppliers. Inadvertently, since a fixed price has been given to the brand owner, the ODM will squeeze the whole supply chain for lower cost. The brand owner just ensures the product look is as per the design. And product recall risk is with the ODM. Under OEM model, the brand owner will have a role in components and supplier selection. For Nico, they work directly with the brand owner to get their product qualified and pricing determined. Thereafter, all metal stampers have to source from Nico and there is less risk of price discounts because negotiations have been conducted directly with the brand owner.

Design in and qualification life-cycle. It starts with a first article to the design teams, then P1/P2 trial stage, then toward DVT1/2 prototype. At DVT2, the product is virtually confirmed unless major change in design. Next, MP1 stage where units will be given to partners to try. The final stage is mass production (MP2). The whole process could take 1 to 1.5 years.

Ways to remove heat. There are generally three ways to remove heat generated in an electronic device: Firstly, active is to use the material to remove the heat; Secondly, passive is to use the fan to remove the heat. But this takes power and is noisy; Thirdly, radiative is to push the heat into the air via air gaps. Heat will affect the life span of the device. A typical CPU can hit 160 degrees Celsius.

Electroplating plant. When we visited the plant, new lines were being installed to raise productivity and capacity. The electroplating process is tightly controlled by the authorities. There is heavy use of water in this process to clean the metal at every stage and prevent contamination. This could lead to metal contamination if not treated. Around 100 electroplating plants may have been shut down in Jiangsu province as China tightened environmental requirements. Nico alone can consume 100-300 tonnes of water per day. And each plant is given a fixed quota of water they can discharge daily. Advantage of electroplating is it can alloy or combine various metal at thinner dimensions.

[The thermal fin will be electroplated with copper and/or nickel over aluminium alloy metal to achieve the heat dispersion and weight management objectives].

The various metal features. Copper is a good conductor but expensive, heavy, soft and oxidises (need plating). Alloy the copper (or CA series) with nickel can strengthen it. Aluminium is cheaper and light but traditionally not used because of insufficient strength. Magnesium is lighter than aluminium but flammable in dust form and brittle. Stainless steel is strong and corrosion resistant but heavy because of the iron element.

Other products. Apart from the three key products mentioned, these are some of the products either in development or smaller in volumes:

1. Heat Pipe or Vacuum Chamber: Next phase in thermal control design. This has very strong heat dispensing capabilities. It is basically two pieces of copper sealed together with a gap in-between filled with pure water. Heat will virtually steam up this liquid inside and transfer the heat at an extremely fast Some of the latest high-end smartphones use this as a heat shield.
2. Cladding solution (N-Clad series): Cladding is the process of squeezing two to three types (e.g. aluminium, copper, stainless steel) of metal into 0.2mm thickness.
3. Connector using aluminium: Still at the development stage but an aluminium alloy solution can improve the cost dramatically.
4. Camera casing for wearables: Metal housing for heat dispersion of the camera.

Source: Phillip Capital Research - 04 Mar 2019