Server chassis maker Karrie expects more orders for its new Thailand plant

Hong Kong’s server chassis manufacturer Karrie International (1050) forecasted the capacity of the plant in Thailand may expand by 10 percent with more new customers amid the uncertainities in US presidential election and tariffs.

Brian Ho Wai-hon, assistant to chairman and head of finance and accounting department, added that the Thailand factory could work as a backup if more clients in the West asked for products made out of China.

The factory in Thailand has started production for a Dell project, though the products are more simple to make than those in Dongguan in mainland China.

Ho said some clients have long-term concern about geopolitical tensions, which have triggered the supply chain shift from China to Southeast Asia. Mainland clients only contribute less than 5 percent of Karrie’s total revenue.

But the mainland base in Dongguan will currently still care for most Karrie's capacity, Ho said, as some supplies in mainland China are more cost-efficient.

After a sharp rebound in the second half of 2023, Karrie expects its business to maintain momentum in the ongoing financial year amid the strong demand for artificial intelligence servers.

Also benefiting from the cheaper steel, Karrie has confidence that the gross profit margin of the metal and plastic business could rally above 20 percent this year from 19.5 percent for the 12-month period ending in March, said Brian Ho Wai-hon, assistant to chairman and head of finance and accounting department. 

To catch the opportunities of generative AI, Karrie has won orders from Dell, Lenovo (0992) and Hewlett Packard Enterprises for AI server chassis manufacturing, including the liquid cooling and air cooling models. Karrie has been listed as an eligible supplier of Nvidia MGX, a modular reference design proposed by the US chipmaking giant that can be used for various scenarios from remote visualization to supercomputing.

But Ho said the pursuit could increase capital expenditure, as the AI server industry is using a “high-mix-low-volume” strategy to find the best design and Karrie is actually advantageous in mass production. Karrie plans to spend HK$130 million this year.

The selling price per unit of servers with cooling functions is slightly higher than the general types, Ho added.

Another concern would be the high interest rates. Ho revealed that Karrie needs to repay over HK$40 million for interests, a bit high for an industrial manufacturer, but he thinks the expenses could have peaked as the US Federal Reserve is not expected to hike the rates again.

Karrie may increase the proportion of yuan loans to reduce the borrowing costs as well, which Ho thinks could reach 50 percent of the company’s total loans. 

Ho also highlighted that its net profit for the year ending in March posted a 7 percent fall only after excluding the separated property businesses.

The dividend payout ratio is likely to stay around 65 percent.