Manufacturers gain from growth of medical device, aerospace and test equipment industries


  • Business
  • Saturday, 12 Nov 2016

Phang: ‘From 2002 to 2015, approved investments in medical devices totalled RM18.4bil with 53.5 coming from foreign sources. The increase in FDI reflects the continuing confidence in the industry ecosystem.’

THE global medical device, aerospace and test equipment markets are experiencing growth, generating spillover effects for the local manufacturing base in the country.

These growing industries have augmented the approved medical investments in the country and created new business opportunities for aerospace and test equipment companies.

According to the Malaysian Investment Development Authority (Mida), from January to August 2016, there are 27 approved medical device projects with investments of RM1.72bil.

Of the total, 16 are expansion and diversification projects. The other 11 are new.

A total of 3,973 job opportunities will be created from these investments.

Mida deputy chief executive officer Datuk Phang Ah Tong tells StarBizWeek that in the first half of 2016, approved investments saw a two-fold increase to RM1.6bil compared with RM534.4mil in the corresponding period last year.

“From 2002 to 2015, approved investments in medical devices totalled RM18.4bil with 53.5% coming from foreign sources.

“The increase in FDI reflects the continuing confidence in the industry ecosystem,” Phang adds.

Most of these investments for January to August 2016 were from Luxembourg, US, Singapore, Hong Kong and UK.

In terms of the number of projects, the top five recipients were Selangor (8), Penang (6), Johor (4), Perak (3) and Negeri Sembilan (2).

For Penang, five out of the total projects are new and will create 970 job opportunities.

The local medical device industry is also projecting growth in the export of medical devices from the country.

The Association of Malaysian Medical Industry (AMMI) forecasts that export sales AMMI members will experience annual double digit percentage growth of 15% to reach RM9.61bil in 2016 and RM11.06bil in 2017.

According to AMMI, the overseas sales of medical device industry in Malaysia is expected to enjoy double digit percentage growth of 15% to reach RM17bil in 2016.

“Over 200 medical device projects approved by MIDA since 2009 are at various stages of implementation and ramping up production volume for export purposes.

“Existing manufacturers will also have the advantage of exporting with a weakened ringgit against the US dollar,” says AMMI chairman Hitendra Joshi.

Joshi says about 40% of AMMI members surveyed indicate they have future expansion plans in the pipeline, involving buildings, machinery, equipment, facilities and product lines.

“The combined projected value of these foreseeable future development plans is about RM875mil.

“AMMI members collectively project that 2,000 additional talents are required to support industry growth in 2016,” Joshi says.

According to Joshi, competition from manufacturers in China, India, Thailand and Vietnam will continue to add pricing pressure to AMMI members in Malaysia.

“Despite a weaker ringgit and other extraneous factors that dampened the economic outlook of this country, most AMMI member companies remain bullish about business prospects in Malaysia in 2016 and beyond,” Joshi adds.

Moving ahead, Joshi says the industry’s new verve is to manufacture and export high-end medical products such as orthopaedic implants, pacemakers, surgical instruments, and intravenous cannula.

The planned merger and acquisition exercises to be undertaken by medical multi-national corporations underpins the positive outlook of the local medical device industry.

Abbott Laboratories’s plan to sell its eye care business to Johnson & Johnson (J&J) for about US$4.33bil cash to focus on cardiovascular devices and diagnostics business can be good news for Malaysia.

As Abbott Laboratories has an business unit in Kulim, intraocular lenses (IOL) manufacturer, Abbott Medical Optics, there are market talks that the deal once sealed would lead to an expansion of the Kulim operations.

Then there is the proposal from Abbott Laboratories to take over St Jude Medical Inc in a deal that values the maker of heart devices at US$25bil, making its biggest ever acquisition as the industry consolidates to gain bargaining power with hospitals.

Should the deal is inked, we could also expect St Jude Medical’s operations in Penang to expand.

Aerospace industry

Meanwhile, Boeing has forecast a need for over 39,600 airplanes valued at more than US$5.9 trillion over the next 20 years, which will benefit the growing local aerospace industry.

In its ‘About our Market: Current Market Outlook 2016-2035’ report, Boeing says 38% or about 15,000 of the new airplanes will be delivered to Asia.

According MIDA, from January to August 2016, approval was given for three aerospace projects with investments of RM260mil.

These investments, mainly from Singapore, are expansion and diversification projects in Malacca and Penang that would create 144 new jobs.

Aerospace companies in the country have already responded with plans for expansion.

In an interview in March 2016, Sam Engineering & Equipment (M) Bhd chief executive officer Jeffery Goh Wee Keng says the company’s existing facilities are already running at full capacity and the expansion would cater for new orders.

He says RM70mil has been allocated for a new plant on a four-acre site in Bukit Minyak to produce nacelle beams for the new Airbus A320neo aircraft.

“The other RM30mil would be to equip an existing facility on the island to produce smaller aerospace components,” Goh says.

In its 2016 annual report, the group says it is confident that the aerospace business will grow to hit the targeted 80% revenue ratio.

According to the annual report, SAM has obtained long term contracts to supply Airbus 320neo nacelle beams and prismatic parts for the Airbus 350, Boeing 787 and Bomabardier C-series aircraft.

“These new projects will contribute to SAM’s growth by 2018. Our contractual backlog stands at RM3.5bil,” the annual report says.

The aerospace contribution is now about 57% to the group’s revenue.

CTRM Aero Composites Sdn Bhd has also invested in a new RM100mil plant operational by the second quarter of 2017 in Malacca to ramp up its production capacity to meet the demand for aircraft composite components.

CTRM expects an average increase of RM218mil in revenue for the next 15 years due to amendments in its contract with Rohr Inc in late 2015.

Rohr is a UTC Aerospace Systems (UTAS) company incorporated in Delaware, USA.

The existing agreements and the contract amendments relate to the supply by CTRM-AC to UTAS of aft cascade rings, fan cowl and thrust reverser products, and related spare parts for use in the commercial aerospace industry.

Last year, UMW Group has also secured an RM830mil deal with Rolls-Royce Ltd to manufacture and assemble aero engine fan cases.

The 25-year agreement will see UMW M&E Sdn Bhd and subsidiary UMW Aerospace Sdn Bhd make fan cases for Rolls-Royce’s Trent 1000 engines which power the Boeing 787 Dreamliner.

Test equipment sector

Local test-equipment companies are expected to do well in 2017, as SEMI has projected an 11% growth in 2017 to hit US$41.1bil from US$36.9bil projected for 2016.

In particular, the world-wide spending for test equipment is projected to be US$3.36bil in 2016, compared to US$3.36bil, and US$3.46bil in 2017.

SEMI is the global industry association serving the manufacturing supply chain for the micro- and nano-electronics industries.

Penang-based Pentamaster Corp Bhd is expected to deliver 100 units of test equipment with a value of about RM70mil for the smart device and automotive industries.

“These test equipment would be used for checking the sensors in audio and visual systems for smart devices and automobiles,” Chuah says. “Everytime they come out with a new smart device model, there will be a need for new testers to check the various sensors that go into the device.

“These are micro-electro-mechanical systems (MEMs) motion, signal, sensors, audio, and pressure sensors,” he says.

According to Chuah, more than RM500mil worth of jobs is outsourced annually to SME vendors by test equipment companies in the country.

“The precision tooling components and the metal fabricated parts are used in new test equipment and as replacement parts in current machine,” he adds.

He adds that the group was increasing in 2016 the outsourcing of precision tooling and metal fabrication work to local small and medium vendors.

“This year the outsourced amount would increase to RM60mil from RM40mil spent in 2015,” Chuah says.

Elsoft Research Bhd chief executive officer CE Tan says the feedback from customers so far indicates that the first quarter of 2017 would not be a conventional soft period.

Elsoft’s order for the second half had registered over RM30mil worth of orders for test equipment.

“We are in the process of delivering the test equipment for used in the automotive lighting, smart devices, and general lighting segment.

“We expect the flow of steady order to continue in the fourth quarter,” Tan says.

Tan adds the group had already outsourced more than RM16mil worth of jobs to local SMEs to make customised metal fabricated and standard parts.

“This is more than what we spent a year ago on outsourcing,” he adds.

From January to August 2016, MIDA gave approvals for 68 electronic and electrical (E&E) projects with investments of RM7.13bil.

Of the total, 59 are expansion and diversification projects, while the other nine are new. A total of 12,960 job opportunities will be created from these investments.

Most of these investments are from UK, China, Germany, Belgium and Japan.

In terms of the number of projects, the top 5 recipients were Penang (22), Johor (19), Selangor (8), Kedah (6) and Perak (4).

For Penang, the majority of the projects are expansion and diversification projects and will create 4,580 job opportunities.

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