Penang tech players continue to benefit from trade war

Vitrox Corp Bhd chairman Datuk Seri Kelvin Kiew (pic) explains: “Customers are stocking up raw materials and semi-finished components used in the manufacturing of IT, telecommunications and automation products because of the fear that the trade war would worsen by the end of the year."

THE electronics manufacturing companies in Penang expect good prospects for the next six to nine months, due to the impact of the worsening US-China trade war.

Vitrox Corp Bhd chairman Datuk Seri Kelvin Kiew explains: “Customers are stocking up raw materials and semi-finished components used in the manufacturing of IT, telecommunications and automation products because of the fear that the trade war would worsen by the end of the year.

“Customers don’t want to experience getting cut off from the supply chain again, which happened last year when the US-China trade war peaked.

“To avoid this problem, customers are stocking up their inventories”.

He adds that the group expects sales of its automated board inspection (ABI) equipment in the second half to improve over that of the first half.

“The whole 2020 year should be slightly better than 2019, ” Kiew says.

Vitrox, an automated machine vision inspection system provider, has seen its share price rising by 15% from last month. Kiew adds that if the US-China trade war were to worsen, some multinational corporations in China would look to relocate to South-East Asia to continue manufacturing.

“Malaysia will be a potential destination to benefit from the plans to relocate.

“This could be a reason for the sudden surge in Malaysian technology companies share prices, ” Kiew says.

On the longer-term outlook, Kiew says there is no clear visibility.

“A lot will depend on the status of the pandemic and the US elections, ” he adds.

The US-China trade war looked set to intensify again after China reneged on its agreement to buy US$200bil worth of products over the next two years from the United States.

The Trump administration has also issued a new rule in May that will bar Huawei and its suppliers from using American technology and software, a significant escalation in the White House’s battle with the Chinese telecom giant and one that is likely to inflame tensions with Beijing.

The rule change, which is slated to go into effect in September, will block companies worldwide from using American-made machinery and software to design or produce chips for Huawei or its entities.

Companies can apply for a licence to continue supplying those products, but the administration said the presumption would be to deny those requests.

Globetronics Technology Bhd chief executive officer Datuk Heng Huck Lee (pic below) says the electronic and semiconductor industry is recovering steadily from the pandemic.

“The prospects of a worsening US-China trade conflict has compelled our customers to increase their orders.

“Our smart sensors order book is filled, and the production line is operating at near maximum capacity till year-end.

“However, the group expects a flat year because Covid-19 badly impacted the first half of this year, ” says Heng.

On the local and global technology stocks, Heng says they have picked up because of their growth potential in the short and medium term.

“We should continue to see more foreign direct investments coming into Malaysia.

“We can see more local technology companies investing in expansion, product development and technology upgrade.

“When the US-China trade war compels multinational corporations to relocate out of China, Malaysia and other Asean countries will be the choice locations due to its mature supply chain, experienced workforce and good ready infrastructure.

“Many Malaysian technology companies will continue to benefit and perform better, ” he adds.

New investments

According to Heng, the group will remain cautious when it comes to making new investments.

“The group currently is in the advanced stage of finalising with a new partner to start up a new manufacturing operation for micro-electro-mechanical systems (MEMS) sensors in Malaysia.

“We are very quite cautious and selective in what we will invest, and the MEMS segment shows very good growth potential.

“Smart devices and equipment with human-machine interfaces are adopting MEMS sensors.

“These products are widely used in connected automobiles, smart wearable devices and smart homes.

“Medical and biotechnical are also new areas adopting MEMS technology, ” he says.

According to a ReportLinker research, the global MEMS devices market is projected to reach US$113.8bil by 2027.

“Amid the Covid-19 crisis, the global market for MEMS devices estimated at US$58.8bil in 2020, is projected to reach a revised size of US$113.8bil by 2027, growing at a compounded annual growth rate (CAGR) of 9.9% over the period 2020-2027.

“Sensors, one of the segments analysed in the report, is projected to grow at a 10.4% CAGR to reach US$73.4bil by the end of the analysis period, ” the report says.

Globetronics share price hit RM2.36 recently, up by 8% from June.

According to Pentamaster Corp Bhd (pic below) chairman C.B. Chuah, compared to the other companies in the hospitality, oil and gas, banking, and construction industries, technology stocks gained attention because of their growth potential.

“Our test equipment sales have started improving in the second half because customers are stocking up inventories lest the impending US-China trade war worsens the supply-chain situation, which is still in bad shape.

“The companies with the most growth potential are those involved in the 5G telecommunication, electric vehicles, and medical devices industries.

“They are the ones buying our test equipment to test the functionality and reliability of the components used in their products.

“In the short term, over the next six to nine months, the prospects of our group look good.

“In the longer term, it is harder to visualise, ” he adds.

Chuah says because of the pandemic, the group’s sales revenue for 2020 is likely to remain flat.

According to Chuah, the group is now increasing its team of engineers based in overseas.

“The global pandemic has made it difficult, if not impossible, for our engineers to travel overseas to do the installation of test equipment and assembly line for customers.

“We are now expanding the offices in Singapore and the United States. Subsequently, we will also add more engineers in Taiwan and Japan before the year ends, ” Chuah adds.

Chuah says that he expects to see massive unemployment around the world after the global lockdown, which will slash the purchasing power of consumers.

“During this slow period, the group will focus on design and development activities to develop the latest smart sensor technology testing.

“However, we still have projects with our key customers, and we will invest accordingly to meet the needs of the projects, ” Chuah says.

According to Chuah, the group is well-positioned for the journey to grow its customer base and revenue.

“With our diverse range of solution offerings, advanced technology, investments in building infrastructure and increase in hiring of skilled engineers in recent years, we have developed a strong foundation for our future potential and growth.

“To mitigate any risks, the revenue of the group will have to be well-diversified across different industry sectors and geographical locations. “The Industry 4.0 revolution presents new opportunities for us to work with a different sector of customers for both the automated test equipment (ATE) and factory automation solutions (FAS) segments, ” he says.

The ATE segment is expected to continue with its larger portion of revenue and profit contribution to the group, but Chuah expects its contribution rate to ease to approximately 70.0% in 2020.

“Meanwhile, FAS segment is expected to grow from 15.0% to 30.0% or more for the coming years, ” he says.

Pentamaster’s share prices increased to RM5.91, up by 18% from June.

MMS Ventures Bhd managing director T.K. Sia said the technology stocks are attracting attention because of the improved sales of IT and telecommunication products.

“The global pandemic has prompted education centres and businesses to upgrade their IT infrastructure to support online education and e-commerce platforms.

“The possibility of multinational corporations relocating to Malaysia as a result of worsening US-China trade relations has also channelled investments into local technology companies, ” Sia says.

Since the implementation of movement control order (MCO) in March, the group’s sales have dipped by over 30% for the first six months of 2020.

“For the whole year, we may see a more than 30% decline in our sales, although sales are picking up for the second half, ” Sia adds.

MMS Ventures sells semiconductor test-equipment to the smartphone and automotive segments, which contribute 50% and 15% respectively to the group’s revenue.

“Initially, we aimed to achieve sales of over RM40mil for 2020, but now we don’t think that is achievable.

“We have adjusted the target to about RM30mil for 2020, ” he said.

Moving on, Sia says the group would invest more into the automotive segment, which has the potential to contribute about 30% of the group’s revenue in five years.

According to a MarketsandMarkets research report, the global automotive test equipment market is projected to grow at a CAGR of 3.95% to reach US$2.9bil by 2025 from an estimated US$2.2bil in 2018.

MMS share prices went up by 9% to RM0.695.

Meanwhile, PIE Industrial Bhd, a Taiwan-based electronic manufacturing services (EMS) provider, is kept busy by the order backlog it had accumulated during the MCO period.

“The order backlog will keep us busy until the third quarter. The signs of a slowdown will be evident in the fourth quarter and will remain as long as the global pandemic lasts, ” its managing director Alvin Mui says.

Mui said technology products, especially those in the telecommunications sector, are selling well because the new normal requires the deployment of more mobile telecommunication and IT products.

“For EMS activities (73%), orders are expected to increase in the long run from existing customers and potential new customers through its fully built-up vertical integrated manufacturing facilities which will be further improved in operation for the coming years.

“The US-China trade war impacts us positively.

“The EMS division expects to receive more orders from new overseas customers who are depending on supply from China.

“Because of Covid-19, our EMS division has faced unprecedented production and shipment issues caused by the worldwide lockdown and the implementation of MCO in Malaysia.

“We will resume full production and shipment if the global spread of Covid-19 is well contained.

“However, any drastic fluctuation of the ringgit against the US dollar and global development of Covid-19 will be the main factor affecting its performance shortly, ” Mui adds.

PIE share price closed at RM1.34 yesterday.

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