Strong times ahead as E&E matches supply with demand - MIDA | Malaysian Investment Development Authority
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Strong times ahead as E&E matches supply with demand

Strong times ahead as E&E matches supply with demand

05 Jan 2022

Malaysia’s manufacturing index accelerated to eight per cent year on year (y-o-y) amid stronger growths in export-oriented and domestic-oriented sectors. In the export-oriented sector, broad-based improvement across industries was seen.

Hong Leong Investment Bank Bhd (HLIB Research) noted that electric and electronics (E&E) production grew 13.6 per cent y-o-y, mainly on higher computers and peripheral equipment and consumer electronics productions.

Similarly, trade data in November 2021 remained in expansionary mode at 32.4 per cent y-o-y.

“Manufactured exports grew 27.4 per cent y-o-y, contributing 21.8 percentage points to overall growth. This was led by E&E products (17.4 per cent y-o-y), in line with stronger semiconductor billings growth.

“Exports to US and EU in November 2021 recorded double digit yearly increase of 33.5 and 30.9 per cent, respectively. Note that both of these regions are the main revenue contributors for VS Industry Bhd (VSI) and Uchi Technologies Bhd.

“We gather that Panasomic Manufacturing Malaysia Bhd’s Shah Alam 2 plant is currently fully operational with the target to increase the in-house production of injection parts,” HLIB Research added.

“We note the possible delay in reaching its target due to the recent flood that affected its Shah Alam 2 plant but we opine that production will start ramp up once condition normalises.”

Similarly, VSI’s new 300,000 square feet facility (secured in October 2020) at i-Park Senai Airport City has commenced operation, with HLIB Research expecting utilisation to pick up steadily.

It gathered that full utilisation for the dedicated facility could garner RM1.5 billion revenue from Customer Y. Furthermore, VSI secured two additional factories early this year in anticipation of robust demand from pool cleaner customer.

“We gather that the additional space could garner RM600 million to RM800 million sales. Note that pool cleaner contributes the highest margin.”

As for the issue of shortage of foreign labour, HLIB Research said it remains a near-term hiccup for electronic manufacturing sector (EMS) players in Malaysia.

“VSI is ramping up effort in hiring local workers to tackle the foreign labour shortage,” it added. “Should the government announce to allow the entry of foreign worker this year, we opine that the sector would be able to mitigate this shortage.

“We also applaud the VSI’s proactive effort in conducting open discussion to improve labour welfare following the recent conundrum. On the greener side, VSI expects strong outlook from Customer X with order diversion from another contract manufacture following the recent labour issue.”

VSI’s management expects to start production for the diverted four models in 3QFY22. With the availability of floor space following Victory’s exit, potentially there could be additional RM1bn revenue from the conversion of space.

“We remain optimistic that outsourcing trend will persist with the combination of trade war and work from home trend that will continue to benefit our manufacturing players.

“Despite some headwinds from prolonged supply chain disruptions, the lifting of restrictions domestically and abroad is expected to further improve demand conditions and support manufacturing activity in Malaysia.”

Source: Borneo Post Online