How a factory makes money putting someone else's name on it

A factory makes money on someone else's name by taking a very small slice of each product and running a huge number of them through its lines. The brand keeps the name and the price tag. And from what I can read in the filings, the volume often comes down to one customer, which is the part I'd lose sleep over.

A very small slice

Start with the slice. A 2021 report in The Star looked at EG Industries, an electronics maker. It was keeping about RM1 of net profit on every RM100 of sales.²

That's thin even for this trade, since the same report puts listed peers' net margins in single digits. SKP Resources, a bigger contract manufacturer, did much better in FY2025.¹ Even so, its annual report gives it about RM117 million after tax on about RM2.2 billion of revenue.

Where RM100 of one factory's sales went, FY2025

That's about 5.3%, by my division.¹ It's close to what a mini-market keeps on a packet of noodles, which amused me more than it should have, given that one of these jobs involves injection moulding.

I wanted to set this beside what a brand earns on the same product. I couldn't find a Malaysian factory's price per unit anywhere, so I can't say how much of a shop price reaches the factory. These contracts aren't in anything I read.

The better money seems to sit further along the line. The Star's report on EG had board assembly bringing in about 80% of revenue at the lower margin, while finished "box build" work made up about 20% at a higher one.²

My guess at why a brand bothers: it gets to skip owning the factory, hiring the workers and paying for empty months. And my guess at why a factory agrees is the mirror image. It never has to advertise, run a shop or persuade one single stranger, and in exchange it takes the empty months.

Whose orders are these?

This is where I'd read the small print, because the risk is written down. SKP's report says one customer accounted for 79% of its trade receivables at its March 2026 year end. A year before, it was 77%.¹

That's money owed and not sales, so it isn't quite the same thing as a share of revenue, but I wouldn't expect the two to be strangers. The report doesn't name the customer, so I won't either.

It isn't an oddity of one company. VS Industry's main customers, a handful of brands in appliances, coffee and pool cleaning, made up 76% of its FY2024 revenue, going by The Star's report on a broker's note.

SKP's directors say the 79% doesn't create significant credit risk, given the length of the relationship.¹ On credit, that sounds fair to me, since a big customer of long standing will probably pay its bills. I'd just worry about the next order more than the last invoice.

What a soft year looks like

A factory's costs don't shrink as politely as its orders do. SKP's revenue fell 18% in FY2026. Its profit after tax fell 73%.¹

SKP's FY2026 against the year before, percent fall

The report's own explanation lists lower volumes, tariff-related pricing pressure and under-utilised capacity, alongside that impairment of about RM23.5 million.¹ It stayed profitable, and it says it's still working to diversify.

It also mentions helping customers with their "cost and competitiveness requirements through targeted cost-down initiatives".¹ I read that as the other side of the deal: when the brand is squeezed, the slice gets smaller too.

The report is also frank about its new plant in Johor Bahru, saying the bigger footprint "creates near-term operating leverage when demand is subdued".¹ In ordinary words, a building costs the same whether it's busy or not.

And when the customer goes

The hard version happened at ATA IMS. Its biggest customer had historically made up 81% to 88% of revenue, by one analyst's count quoted in The Edge.

In November 2021, that customer gave notice to end its contracts, with effect from June the next year.⁴ What I can read is what followed.

A little over a year on, quarterly revenue was down 72% from the same quarter before, and the net loss was about RM147 million. The company put the decline down mainly to the terminated contracts.

I don't think any of this makes contract manufacturing a bad business. A long relationship with a big customer really is worth something, and SKP's own five-year table is mostly a record of decent years.¹

But if I ran one, I'd watch that top customer's share more closely than any margin. It's the number that decides whether a bad year is a bad year or the end of the plan.