Operating and Financial Review

extracted from the Annual Report 2023

Operational Review

In FY2023, the Group encountered challenges arising from the global semiconductor demand slowdown and economic headwinds, leading to a lower overall performance for the year. However, despite these obstacles, the Group maintained profitability and a healthy financial position, reflecting its resilience and strength in the face of global market challenges and industry risks.

The Group posted a pre-tax profit of S$2.1 million in FY2023, compared to S$9.2 million in FY2022, with revenue decreasing by 29.6% to S$58.1 million. Despite the decline in revenue, all business segments remained profitable. In FY2023, the Group invested S$3.0 million in machinery and equipment, totaling approximately S$10.1 million over the two-year period, aimed at improving its ability to provide additional complex manufacturing services to existing and potential customers.

The aerospace industry remained the primary revenue driver for the Group, generating S$22.7 million in FY2023, up from S$15.0 million in FY2022. This segment remains crucial to the Group’s revenue stream, supported by the robust performance of the global aerospace industry. Furthermore, the aerospace sector is experiencing a strong rebound in global air travel, leading to a surge in demand for aircraft. This underscores its significance in driving the Group’s growth.

Precision Machining

Revenue in the Precision Machining segment remained relatively stable at S$29.1 million in FY2023 compared to S$29.2 million in FY2022. Profit for this segment fell by 55.5% to S$1.4 million, owing to higher production costs than in FY2022. This segment primarily comprises two sectors: electronic components and the aerospace sector. The performance of this segment was lifted by a stronger contribution from the Group’s aerospace business.

In FY2023, aerospace sales grew by almost 51.7% to S$22.7 million from S$15.0 million in the previous year. The improved aerospace revenue was driven by the rise in global air travel, benefiting from increased sales to China, the USA, and Canada as these countries reopened their borders during the period. In contrast, revenue from electronic components dropped from S$14.2 million in FY2022 to S$6.3 million in FY2023 due to lower global demand for semiconductors.

Equipment Manufacturing

The Equipment Manufacturing segment posted a profit of S$0.6 million on sales of S$19.9 million, a decrease of 52.4% compared to S$41.7 million in FY2022. The decrease in revenue was impacted by the lower global demand for semiconductors.

According to SEMI, while there was a temporary contraction in 2023 due to the cyclical nature of the semiconductor market, semiconductor manufacturing equipment growth is expected to resume in 2024, with sales forecast to reach a new high of $124 billion in 2025, supported by both the front-end and back-end segments.¹

Additionally, global semiconductor capacity is expected to increase 6.4% in 2024 to top the 30 million wafers per month (wpm) mark for the first time after rising 5.5% to 29.6 wpm in 2023, SEMI announced today in its latest quarterly World Fab Forecast report. The 2024 growth will be driven by capacity increases in leading-edge logic and foundry applications including generative AI and high-performance computing (HPC), and the recovery in end-demand for chips. The capacity expansion slowed in 2023 due to softening semiconductor market demand and the resulting inventory correction.²

Trading and Others

In FY2023, the Trading & Others segment’s profit decreased by 14.1% to S$1.3 million on sales of S$9.2 million, which declined by 20.9% from the previous year due to low demand for industrial manufacturing equipment globally. Despite encountering these challenges, the Group remains steadfast in its commitment to a proactive strategy, focusing on exploring and developing new markets, diversifying its trading segment’s customer base, and expanding its product range.

These factors are expected to persist and continue to influence the business environment in the near term. In light of this, the Group remains vigilant and committed to implementing prudent measures to ensure sustainable growth in the coming year. With our healthy financial position, the Group is well-poised to capitalize on new market opportunities across all core business segments, thereby driving growth.

Financial Review

Financial Performance

In FY2023, the Group achieved a net attributable profit of S$1.7 million on sales of S$58.1 million for the year - which were lower by 77.9% and 29.6% respectively, compared to FY2022. Group profit before tax dropped by 76.9% to S$2.1 million from S$9.2 million in FY2022.

Compared to FY2022, the Equipment Manufacturing segment posted a profit of S$0.6 million (S$5.8 million in FY2022) on sales of S$19.9 million, down 52.4% from S$41.7 million in FY2022. The Trading & Others segment’s profit dipped 14.1% to S$1.3 million on sales of S$9.2 million, down 20.9% from the previous year due to low demand from industrial manufacturing equipment globally. Sales in the Precision Machining segment remained relatively stable at S$29.1 million in FY2023 compared to S$29.2 million in FY2022.

All the Group’s key markets, except Singapore and Malaysia, reported higher sales. China’s sales soared by 13.3% from S$6.9 million in FY2022 to S$7.8 million in FY2023. This increase is mainly attributable to the Precision Machining segment under the Aerospace sector, which grew by 169.2% from S$1.5 million to S$4.0 million. This growth was partially offset by the fall in sales in the Trading & Others segment, decreasing by S$1.6 million from S$5.4 million. Sales in the Canada increased by 142.5% from S$1.1 million in FY2022 to S$2.6 million in FY2023, driven by sales growth in the Precision Machining segment. Sales in the USA reported a 35.8% increase, rising from S$10.4 million to S$14.1 million, mainly attributable to the increase in sales from the Precision Machining segments.

Sales in these three geographical markets were lifted by the robust recovery of the Aerospace industry during the period under review.

The cost of sales decreased by 25.0% from S$66.1 million in FY2022 to S$49.6 million in FY2023. The gross margin decreased 5.2% compared to 20.0% in FY2022. This decrease was attributed to the Group’s product mix, with lower sales of higher-margin components and an increase in input costs.

Despite the lower revenue, attributable to various economic challenges and market uncertainties, the Group remained profitable in FY2023.

Other operating income remained relatively constant compared to FY2022. This was primarily due to the composition of grant amounts received, gains on the disposal of property, plant and equipment, interest income, and dormitory occupancy income, which were offset against foreign exchange losses.

Selling expenses mainly comprise staff costs of the Group’s sales and marketing staff, outward freight, traveling and marketing expenses, and other related expenses. The expenses in FY2023 decreased by 23.4% compared to FY2022, primarily due to lower production volume during the year.

Administrative expenses mainly comprise staff costs, directors’ fee and compensation, depreciation charge in relation to non-production assets, amortisation of intangible assets, professional fees, and other office expenses. In FY2023, the decrease of 6.0% was mainly due to lower production volume during the year.

Finance costs decreased by S$0.09 million from S$0.74 million in FY2022 to S$0.65 million in FY2023, mainly due to lesser borrowings made and repayment loan during the year.

The Group recorded a total income tax expense of S$0.4 million in FY2023 compared to S$1.6 million in FY2022, the decrease in the income tax expenses was due to lower profits made during the year.

Reflecting the Group’s performance, earnings per share (“EPS”) for FY2023 fell 77.8% to 0.406 cents from 1.832 cents in FY2022. Group net asset value (“NAV”) per share increased slightly to 18.5 cents at the end of 31 December 2023 compared to 18.2 cents as of 31 December 2022.

Balance Sheet

Total non-current assets decreased by S$0.9 million, mainly due to a net decrease of S$0.9 million in property, plant, and equipment.

Inventories and trade and other receivables remained relatively constant compared to FY2022.

Trade and other payables decreased by S$4.4 million from S$15.9 million as at 31 December 2022 to S$11.5 million as at 31 December 2023. This reduction was mainly due to fluctuations arising from the timing of payments made to creditors and lower purchases during the year.

The Group total lease liabilities decreased by S$0.1 million from S$6.1 million as at 31 December 2022 to S$6.0 million as at 31 December 2023. The reduction was due to a repayment in relation of leased property, plant and equipment.

The Group total loans and borrowings decreased by S$2.4 million from S$20.9 million as at 31 December 2022 to S$18.5 million as at 31 December 2023. This decrease was due to term loans repayment of S$2.4 million.

Deferred tax liabilities increased by S$0.2 million to S$4.8 million in FY2023 from S$4.6 million in FY2022 primarily due to deferred tax expenses arising from the origination and reversal of temporary differences.

Cash Flow

Net cash generated from operating activities decreased by S$16.8 million from S$20.2 million in FY2022 to S$3.4 million in FY2023, mainly due to lower income generated from operating activities.

Net cash used in investing activities was mainly related to capital expenditure incurred for the purchase of machinery, equipment and the progressive construction cost of a new factory in Penang, Malaysia.

Net cash used in financing activities was for the repayment of term loans and lease liabilities.

The Group’s financial position remained healthy with net cash and cash equivalents of S$19.2 million at the end of December 2023.

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