Financial Highlights

The following table sets out the key financial and operational highlights of the company Group for the Financial Years Under Review and Financial Periods Under Review:

• The revenue grew from RM 113 million in FYE 2021 to RM 144 million in FYE 2022, but declined to RM 93 million in FYE 2023. This is due to the lower volume of orders received from the customer and the slowdown in global semiconductor and E&E industries.

• The gross profit margin continuously increased from 30.77% in FYE 2021 to 37.98% in FYE 2023. This increase is mainly due to economies of scale, reduced employee overtime, and control of raw material purchases.

• The PAT margin increased from 17.50 % in FYE 2021 to 26.34% in FYE 2022, but subsequently declined to 19.67% in FYE 2023.

• The gearing ratio is 0.22 in FYE 2023, which falls slightly below the benchmark range. This indicates that the company still has room to increase debt and bring it within a reasonable gearing ratio range. This provides more flexibility to the company's cash flow. (A good gearing ratio should be between 0.25 – 0.5). 

Major customers and suppliers

Major Customers

The company Group’s top 5 major customers, as a percentage of the company total revenue, for the Financial Years Under Review and FPE 2024 are as follows:

The company is dependent on Customer A group of companies. The company Group’s sales to Customer A group of companies are transacted on a purchase order basis. Therefore, if Customer A group of companies ceases to purchase their products and services, the company may experience a reduction in sales which could result in a loss of revenue if they are not able to replace Customer A group of companies with new customers or with additional orders from existing customers in a timely manner. 

Major Suppliers

The company Group’s top 5 major suppliers, as a percentage of our total purchases, for the Financial Years Under Review and FPE 2024 are as follows:

The company is not dependent on any of the other major suppliers and can source for the same supplies from alternative suppliers.

Industry Overview

Precision engineering is an engineering discipline involving the design, development and/or production of, amongst others, precision equipment, devices, components, systems, modules and processes, with emphasis on high accuracy and low tolerances. Precision engineering enables the creation of highly precise machinery parts that are manufactured to the desired shape and size based on customers’ requirements and exact specifications. The raw materials used in the manufacturing of precision engineering components include metal, plastic or ceramic. 

Precision engineering components are intermediate products used for production and/or assembly into finished products for various industrial applications such as photonics, electrical and electronics (“E&E”), semiconductor, telecommunications, optoelectronics, aerospace, automotive, medical instruments and equipment as well as data storage industries. Precision engineering components are essential for various end-user industries as the finished products of the respective end-user industries rely on such components to function effectively and safely. Precision engineering components manufacturing is one of the key segments of the manufacturing industry value chain and is classified under the parts and components manufacturing segment together with standard parts and components manufacturing. 

Some end-user industries such as the photonics, E&E, semiconductor, optoelectronics and  telecommunications industries are heavily dependent on the parts and components manufacturing industry especially for precision engineering components to support their manufacturing activities. These end-user industry players typically outsource part or all of the precision engineering components manufacturing works to achieve quality, consistency and cost efficiency, instead of investing and maintaining a full range of manufacturing facilities required to manufacture their products. As such, the precision engineering industry plays a crucial role in offering support to end-user industries by supplying precision engineering components as intermediate products for the production and/or assembly of finished products. 

According to the research from SMITH ZANDER, the precision engineering industry in Malaysia increased from RM2.15 billion in 2020 to RM3.56 billion in 2022 at a compounded annual growth rate (“CAGR”) of 28.68%, despite the outbreak of the Coronavirus disease 2019 (“COVID-19”) pandemic. In 2023, the precision engineering industry in Malaysia further increased by 12.64% to RM4.01 billion. The growth of the precision engineering industry in Malaysia from 2020 to 2023, was supported by the demand for precision engineering components from end-user industries globally.

The key drivers in this industry:

• Growth in end-user industries drives the demand for precision engineering components 

• Increase in outsourcing manufacturing works to engineering support companies including precision engineering industry players to achieve cost-effectiveness

• Government initiatives in supporting the precision engineering industry

• Continuous innovation in product development in end-user industries drives the demand for precision engineering components manufacturing services

The key risks and challenges in this industry:

• Reliance on foreign workers

• Exposure to global aluminium and copper price fluctuations

• Adverse economic conditions may adversely impact sales of precision engineering components manufacturing services

Future plans and strategies for NORTHEAST GROUP BERHAD

The company plans to grow the company Group’s business by expanding its production capacity, through the future plans and business strategies as follows:

1. Expand production capacity by constructing the New Factory

2. Purchase new CNC machines to support our production capacity expansion

MQ Trader View 

Opportunities

1. The company has an export-oriented business and long-standing relationships with its customers.

2. The quality of the company products is attested by its adherence to quality control measures and its compliance with internationally recognised standards.

3. The company has an experienced and hands-on Key Senior Management team.

Risk 

1. The company is dependent on a major customer and export market.

2. The company is subject to foreign exchange fluctuation risks which may impact the profitability of the company.

3. The company may not be able to implement its future plans and business strategies successfully.

Click here to continue the IPO - Northeast Group Berhad (Part 1)

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