Penang manufacturers feel the heat

Slowing demand: SLP workers manning a production line of plastic packaging products and plastics-related goods at the group’s plant in Kulim. For the first time, the group is seeing demand from the domestic market contracting.

GEORGE TOWN: Impacted by the global economic slowdown and US-China trade war, the manufacturing sector in Penang is already feeling the heat, with some factories suspending operations and downsizing their workforce, according to InvestPenang director Datuk Seri Lee Kah Choon.

Recently, Renesas Electronics Corp announced that it would shut down operations in the country from April to September, subjecting both the front-end fabrication and back-end facilities to a temporary suspension of production.

Osram also announced in January that it would resize its Penang and Kulim operations in response to weaker growth and uncertain outlook.

“Malaysia will benefit from the relocation of investment out of China but it will be negatively impacted if the world economy slows down and demand drops,” Lee said.

However, not all electronic manufacturing companies are affected. There are companies in the plastic packaging, aerospace, gaming machines, consumer goods and construction sectors that are expected to perform well this year.

Based on customers’ forecast and enquiries, UNIMECH GROUP BHD expects to ship out over RM145mil worth of industrial valves in the second half of 2019, compared to about RM140mil delivered in the same period last year.

“It is also more than the RM130mil that will be shipped out in the first half of 2019. For us, the domestic demand is still strong, contributing about 53% to the group’s revenue in 2018. The trend should continue this year,” said group executive director Y.F. Sim.

“Indonesia, our biggest market, is expected to generate about 30% of revenue this year, up from about 23% in 2018.

“The Indonesian government’s decision to implement the B30 biodiesel blend soon will boost palm oil output and demand for our industrial valves,” Sim added.

He said the group expected to see growth in top and bottom line this year.

After having experienced growth for more than five years, SLP Resources Bhd is seeing correction in orders. Group managing director Kelvin Khaw said that for the first time, the group is seeing demand from the domestic market contracting.

“The homefront usually generates about 40% of revenue but this year, we expect the contribution to be around 32% only.

“Despite this setback, we foresee a sustainable growth in overall performances, driven by overseas sales and new high-quality packaging materials that can improve our margins.”

Khaw said that based on orders locked in so far, about 25% to 30% of the group’s shipment comprised value-added thin-gauged and recyclable polyethylene packaging materials.

“These niche products will contribute substantially to the group’s bottom line this year. SLP expects a high single-digit growth for its net profit in 2019,” he said.

Khaw said based on orders secured so far and customers’ forecast, the group expected to rope in about 9,000 tonnes of packaging materials with an estimated value of RM100mil, based on today’s international selling price.

“Currently, the international market price is around US$2,800 per tonne for the higher grade packaging products, while the normal grade is around US$1,800 per tonne,” he added.

RGB International Bhd, which is installing 1,770 gaming machines under its concession business in Asia this year, is projecting another growth year.

“In the Philippines, some 600 gaming machines have already been installed in the casino according to the terms and conditions of the contract. The remaining units will be installed by end-July.

“These 1,300 machines would generate a yield of at least US$50mil for the group over the next five years,” said RGB group managing director Datuk Chuah Kim Seah.

Meanwhile, Spritzer is coming up with new products and spending RM25mil to expand its PET plant and water treatment processing capabilities this year to keep up with the growing customer base.

Its group managing director Datuk Lim Kok Boon said Spritzer would introduce new 250ml and 300ml mineral water products soon to increase its market share, which is about 40% now.

“Currently, the group has 16 production lines producing over 700 million litres a year, compared to 15 production lines and 650 million litres in 2018.

“We utilise 70% to 75% of the production lines. The group is projecting a high single-digit percentage growth this year,” Lim added.

Sam Engineering & Equipment (M) Bhd is ramping up production at its facilities in Penang and Singapore this year to fulfil its RM3.1bil order book.

Group chief executive officer Jeffrey Goh said the US$20mil plant in Singapore was being equipped with machinery.

“The plant, which produces engine casing for Airbus and Boeing, should be fully equipped by year-end and fully operational in 2020,” he said.

The nacelle beam production facility at its RM140mil Bukit Minyak plant is equipped with state-of-the-art precision machinery and will employ 200 highly-skilled workers when it is fully operational.

Goh said the short-term market outlook remained positive for the group’s aerospace business, which generates about 60% of its revenue.

According to the recent SEMI forecast, the global fab equipment spending is expected to decline 14% to US$53bil.

The International Data Corp (IDC) report said worldwide smartphone shipments are expected to fall by 0.8% in 2019, with volumes dipping to 1.39 billion.

Globetronics Technology Bhd chief executive officer Datuk Heng Huck Lee said due to the soft market outlook for the first half of 2019, its customers have adjusted their orders and this would have an impact on the group’s forecast for the period.

“However, the second half is projected to see a sharp recovery and our latest May order is showing a strong confirmation.”

Heng said Globetronics have been working hard to counter the risk of smartphone slowdown last year.

Thus in the second half of 2018, it made aggressive efforts to

diversify into new opportunities and market segments with new customers.

“We have allocated a sizeable budget and additional resources to expand our revenue contribution beyond smartphone market, hence reducing our dependency on smartphone and related sensors.

“So far, we are quite happy with the progress and we are confident that a couple of the new business units will commence mass production by the final quarter of 2019,” he said.

Heng said the group’s co-development of an environment-and-bio sensors with built-in intelligence with its US partner is in the final design-in phase by two smart-device companies. “Our end customers in South Korea and China plan to launch products that will be used to monitor hazardous gas level in homes,” he added.

Pentamaster chairman C.B. Chuah said that since January this year, the group has secured some RM300mil worth of orders for its test-equipment.

“Some 65% of the orders are for the smart-sensor segment. The remaining 35% are delivered to the automotive, automated factory manufacturing solutions and general semiconductor,” he said.

Chuah added that the group expected more orders to be secured in the second half-year.

“We can expect the group to register a double-digit percentage growth for revenue and net profit in 2019,” he said.

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