Filling a vacuum

SUPPLIER relationships can quickly unravel for a variety of reasons, from contract disputes to businesses exiting, and so overreliance on one customer or geographic market is a major risk.

A notable example is contract manufacturer SKP Resources Bhd, where one analyst tells StarBiz 7 that an estimated 70% to 80% of the company’s revenue is derived from producing a range of Dyson products, including hairdryers.

If Dyson Ltd were to exit Malaysia, SKP could be significantly impacted, as seen with contract manufacturer ATA IMS Bhd, which suffered massive losses after Dyson terminated agreements with its subsidiaries in November 2021 and December 2022.

“There is a concentration risk that the management acknowledges and is working to lower by diversifying the customer base,” the analyst says.

When Dyson, the privately-held designer of premium household appliances such as hairdryers and vacuum cleaners, was recently reported by Bloomberg to be reviewing its presence in Malaysia as part of a broader review in streamlining operations in the region, supply-chain relationships will almost certainly be part of the equation.

A handful of companies, both domestic and foreign, are Dyson contract manufacturers in Malaysia.

While the Bloomberg report noted that discussions involving the government were still in the early stage, with a full exit only taking place if its manufacturing facilities can be moved elsewhere, contract manufacturers in Malaysia for Dyson have already begun to take heed.

This follows Dyson’s recent actions, including cutting 1,000 jobs in the United Kingdom in July and an undisclosed number in its Singapore headquarters in October.

Dyson CEO Hanno Kirner, in a statement in July, said the firm was reviewing its global structures and preparing for the future.

“We have grown quickly and, like all companies, we review our global structures from time to time to ensure we are prepared for the future.

“As such, we are proposing changes to our organisation, which may result in redundancies,” he said.

Dyson is also said to have recently redeployed employees involved in hairdryer production from its Senai, Johor facility, the Malaysia Development Centre, to other parts of the facility, according to the Bloomberg report.

The facility, which is Dyson’s second-largest, houses 1,400 employees involved in supporting and designs roles, as well as production.

Other contract manufacturers that could be affected include VS Industry Bhd, Singapore-based Meiban Group Pte Ltd and Flex Ltd, as well as Taiwan-based Kinpo Group.

“From what I understand from the Bloomberg report, there is no imminent pullout and the company (SKP) is still receiving orders, and the 12-month forward forecast remains solid.

“The company is also going to begin producing for two new customers from the United States and Europe,” the analyst adds.

The company, which commissioned a new 650,000 sq ft plant in November 2023, has also expanded capacity by 50% in anticipation of new orders.

Recent reports indicate that total orders from these new customers will add 6% to 7% to current revenue.

Kenanga Research expects the company’s growth momentum to continue into financial year ending Mar 31, 2025 (FY25), and FY26, driven by both existing and new customers, although it is still some way from its peak revenue of RM2.5bil achieved in FY23.

Meanwhile, RHB Research forecasts that sales from the US-based customer could double to RM200mil in FY26, up from RM100mil in FY25.

“In addition, talks are ongoing with several potential new customers and SKP is aiming to secure one by end-2024,” the research house adds.

According to CIMB Research, haircare-related products contributed 20% to SKP’s FY24 revenue.

“Our channel checks also indicate that SKP’s major customer remains committed to expanding its production capacity in Malaysia.

“This contrasts with a recent Bloomberg article suggesting that Dyson plans to scale back its hairdryer-related operations in Malaysia.

“We believe Malaysia continues to be a critical manufacturing hub for Dyson, given its competitive cost advantage and a well-established consumer electronics supply chain ecosystem,” it says.

In an analyst briefing following the release of its second- quarter results for the period ended Sept 30, 2024 (2Q25), SKP shared that a “key customer recently revised its sales guidance upward by approximately 6% (or RM100mil) to RM1.7bil for the next 12 months, spurred by demand recovery in the consumer electronics segment”.

Analysts believe SKP, like other contract manufacturers, will continue to benefit from the China+1 strategy as businesses seek to mitigate risks, especially in view of what many expect to be an escalation of the US-China trade war with the return of Donald Trump as US president next year.

Additionally, SKP is enhancing its capabilities to widen its product base.

According to UOB Kay Hian Research, the company is leveraging its vertical integration by focusing on areas such as printed circuit board assembly, injection moulding and engineering to expand its product offerings.

The research house expects higher volume loadings for SKP’s household products in 4Q25 from seasonally lower 3Q25, driven by the festive season.

It also noted that the company remains hopeful of seizing new trade diversion-related opportunities, which could fill its ample capacity.