Meet the Leaders on a Mission to Save Tatung

Eight months into his tenure, Tatung Chairman Lu Ming-kuang has helped the ailing conglomerate turn a profit. Years of infighting over control of the empire has dragged the century-old brand through the mud. How has Lu managed to pull off a massive transformation that promises to deliver positive results as early as next year?

It has been less than a year since the dust settled on the infighting over control of Tatung, one of Taiwan’s oldest companies. The long-suffering conglomerate has operated at a loss for four quarters. Now, it is expected to turn a profit. The newly appointed Chairman Lu Ming-kuang is eight months into his tenure; the new CEO Ho Chun-sheng has served for just two months. Together, they’ve bucked the trend and posted an EPS of 0.35 dollars in the second quarter.

This is the story of the rebirth of a century-old brand. Tatung’s long-overdue transformation has finally begun.

Seated on the chair once occupied by Lin Ting-sheng, heir of Tatung founder Lin Shang-Zhi, Lu expresses confidence in his bid to return Tatung to glory. “At the latest, I believe that by the middle of next year, Tatung’s financial structure will have improved to the point that the nine major business units and the ten subsidiaries will all be turning a profit.”

Last year, a group of investors led by Shanyuan Group Chairman Wang Kuang-shiang and Taiwanese businessman Cheng Wen-i, dubbed the “Market Faction” by the press, acquired seven seats on Tatung’s board of directors. They tapped Lu Ming-kuang, former chairman of Sino-American Silicon Products Inc. and GlobalWafers Co., to take over as Chairman of Tatung. In June, former Advantech Executive Director Ho Chun-sheng came on board as the new CEO.

(Source: Ming-Tang Huang)

Lu and Ho are both alumni of the Department of Electrical Engineering at Tatung University; there are seven years between them. Under their joint leadership, Tatung has begun to turn a profit, and the Lin family has relinquished their seats on the board of directors. Former Chairwoman Lin Kuo Wen-yen has retained only a seat on the board of the subsidiary Shan Chih Asset Development Co. Civil lawsuits filed by both sides during the scramble for control have been dropped.

The dismissal of the lawsuits was one of the two conditions Lu outlined when he agreed to take the helm. The other condition was that every member of the board must support his appointment—including Lin Kuo, who was still on the board of directors at the time. This would show he was not a nominee of the “Market Faction”, but a common denominator that all sides could agree on.

However, the issue that has attracted the most attention concerns the 368 acres of property that belongs to Tatung, which is worth hundreds of billions.

Victory no. 1: Revitalizing idle assets while keeping headquarters intact

A major stakeholder once made overtures about getting some value out of the Tatung headquarters, situated as it is on a valuable piece of property in central Taipei. The five acres of land could be leased for over 13 billion dollars. It makes up a tenth of Tatung’s property assets.

However, Ho vetoed the proposal. Tatung headquarters is situated on an industrial zone; it would take time to convert it to commercial land.

(Source: Ming-Tang Huang)

Instead, other assets were used to help generate value. A section of Tatung headquarters was leased to Fubon Multimedia to be used as a peripheral warehouse. Besides the headquarters, the management team has prioritized developing and revitalizing outlying property assets, such as the Tatung factories all over Taiwan, and the distribution centers that were used to ship appliances back in Tatung’s heyday. 

Lu points out that Shan Chih has multiple ongoing projects, including Tatung Smart Manors, as well as joint development projects along the MRT Wanda–Shulin line. After 2024, these projects are expected to bring in four billion in profits annually.

Currently, Tatung’s debt ratio is nearly 80%. Lu’s target is to squash that number to between 20% and 30% within a year. Individual debt ratio is slated to drop below 50% by next June, while consolidated debt ratio is forecasted to hover between 50% and 55%. This will be accomplished by clearing the 40 billion in debt owed by Chunghwa Picture Tubes as soon as possible, since it makes up half of Tatung’s total debt.

Victory no. 2: Chunghwa Picture Tubes

Chunghwa Picture Tubes declared bankruptcy back in 2019. But there has been a change in the market these past two years. Not only has there been a revival in the display panel industry, but the property value of these factories has also gone up. Now is the best time to deal with the problem of Chunghwa. According to Ho, eager local and foreign buyers have expressed interest in taking the plants off Tatung’s hands. For example, Indian companies gung-ho about creating their own display panel industry have been in talks with Tatung about converting the Chunghwa plants into their training bases. If the deal goes through and the plants are sold, Tatung will reap in around six billion dollars in revenue.

(Source: Ming-Tang Huang)

By improving the financial structure of the company, Tatung will have the wherewithal to plan strategic alliances and initiate acquisitions. This will help them focus on their strong suit, which is electric motors, and make strides in the electric systems market.

Victory no. 3: Hunting for opportunities in the energy market

Tatung CEO Ho was the co-founder of Advantech, and came on board with the valuable managerial experience he gained there. He has discovered that, although Tatung’s product portfolio is similar to Advantech in that there is great variety in small quantities, Tatung is still much more complex.

Let’s have a look at the performance of Tatung’s many business groups during the first half of this year. Although solar energy systems, energy storage systems, and microgrids brought in less revenue than industrial motors or appliances, they actually had the best profitability and productivity per capita. What’s more, selling energy provides a steady stream of revenue. Energy is part of Tatung’s core competencies. Starting from the time when it developed industrial motors, Tatung has been investing in Taiwan’s electric systems for over 58 years. Tatung transformers can be seen in almost every power plant across the country.

Ho’s plan is to use the development of renewable energy and smart energy storage as the driving force that will revitalize older product lines such as electric meters, cables, and motors. The solar energy business unit will focus on more than solar panels; it will become involved in the investment, project planning, maintenance, and management of power plants, as well as the development of renewable energy trading platforms—a one-stop solution.

(Source: Ming-Tang Huang)

“Tatung alumni have always taken pride in Tatung,” says Her Ming-Guo, President of Tatung University.

Tatung was one of the first sixteen Taiwanese companies to go public in 1962. Former Chairman Lin Ting-sheng was as keen about educating the masses as he was about running the business. He knew that large corporations needed talented workers from different fields of study, whether it was electrical engineering, accounting, or economics.

(Source: Ming-Tang Huang)

Back when they were students, both Lu and Ho had listened to Lin give lectures on Adam Smith’s “The Wealth of Nations”. The former President not only taught classes every week, he invited students to intern at his factories, where they would learn to build motors from scratch. Tatung gifted its employees with 30,000 shares of stocks; this was where Lu got the money to start his own business. There are not many alumni of the Department of Electrical Engineering at Tatung University, but they are the products of a strict but practical education. It is the irresistible gravity that draws Tatung alumni together.

In the mad scramble for control of the empire, corporate governance in Tatung was left in shambles. Now, Lu is confident he has found the way to come back from the brink. “I would not stay a day longer if I found corporate governance was not being adhered to under my watch,” he says resolutely.

(Feature image from Flickr – courtesy of Tzuhsun Hsu)