KUCHING: With the escalating US-China trade tension and rising cost of manufacturing in China, most of the Electronics Manufacturing Services (EMS) players have received increased enquiries from multinational corporations (MNCs) looking to shift or diversify their manufacturing base away from China, analysts observe in a sector initiation report.
According to Affin Hwang Investment Bank Bhd (Affin Hwang Capital), three sector players VS Industry Bhd (VS), ATA IMS Bhd (ATA), and SKP Resources Bhd are the largest home-grown EMS players in Malaysia with a combined market cap of US$1.3 billion, serving a common key customer.
“We expect the sector continue to grow on the back of rising demand for the key customer’s premium household appliances, underpinned by a growing middle class, improving standards of living in developing countries and rising demand for high-tech household appliances,” the research firm said.
“The key customer is able to enjoy a lower cost of production with its entrenched ecosystem in Malaysia and will continue its investment in technology which should benefit the Malaysian supply chain.”
“Other than riding on the growth prospects of its key customer, the US-China trade tension has also opened up a window of opportunity for the three Malaysia’s EMS players.
“With the escalating US-China trade tension and the rising cost of manufacturing in China, MNCs and Chinese companies are mulling to relocate their manufacturing base from China to Southeast Asia countries.”
Affin Hwang Capital highlighted that as the seventh-largest electrical and electronic (E&E) exporter in the world, Malaysia is one of the preferred destinations, to avoid US tariffs of as much as 25 per cent on some US$250 billion of imports from China.
It recapped that US imports from China have fallen 13 per cent, while exports to China have declined 16 per cent in the first eight months of 2019, a reflection of dwindling two-way trade.
“We gather that most of the EMS players have received enquiries from MNCs looking to shift or diversify their manufacturing base from China and most of the EMS players have jumped on the bandwagon to explore new opportunities stemming from the escalating US-China trade standoff.
“While little has materialised at this juncture and may require some time for the actual investment and shift in manufacturing to happen, as moving a manufacturing base is not an easy task as it requires the MNCs to rearrange their entire supply chain, there are ongoing discussions and the MNCs are already doing a lot of planning on how to do this.”
Affin Hwang Capital noted that so far, VS has secured a new customer, Bissell, as a result of the trade tension, and the group is in the midst of discussions with other prospective customers.
“Meanwhile, ATA is also in discussions with its prospective customers for potential new contracts, with preference towards Internet of Things (IoT) related opportunities.
“Both players are positive on their potential to secure new orders and/or customers given their proven strong track records.”
In addition, the research firm gathered that the Penang-based EMS players, namely P.I.E. Industrial Bhd and CPI, the newly acquired wholly-owned subsidiary of Kumpulan Perangsang Selangor Bhd, have secured new orders from a number of new customers given the customers’ shift in supply chain motivated by the trade tension.