Management Discussion and Analysis 3

MANAGEMENT DISCUSSION
AND ANALYSIS
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CUSTOMERS AND
PROGRAMMES

Aerospace

The steady recovery of air passenger travel over the entire financial year enables the revenue of our Aerospace business to increase by 30.7% in FY2023. This increase in demand was for a broad range of commercial and business jet products, with the strongest recovery for products used in the single-aisle aircraft of Airbus 320neo and Boeing 737Max. The production rate of twin-aisle aircraft such as the Airbus 350 and Boeing 787 are expected to pick up in the coming year

Equipment

We have achieved another record year of revenue RM1.1 billion for our Equipment business, a 24.6% increase over FY2022’s record. Although there was a softening in our data storage business segment, it was offset by the contribution from new product launches and increase in our Semiconductor Front-end content. We are actively working with our equipment customers to support their growing needs and introduction of new product lines to meet our strategic and growth expectations.

OPERATION INITIATIVES

Aerospace

FY2023 was a challenging year as the world faced increased operating costs and supply chain disruptions, contributed by shortage of labour, the impact of the Russia-Ukraine conflict, high inflation and high interest rates. With the increased demand for our aerospace business, we focused on retaining our core talents and hiring sufficient manpower to support customer needs. Initiatives to improve our productivity and to keep abreast with latest manufacturing technologies through digitisation and automation continue to be our core focus, as we endeavour to stay ahead of competition.

Equipment

In FY2023, we made significant progress in our expansion in Thailand. Besides the 2 factories already at the Rojana Industrial Park, we have acquired a new 1,000,000 ft2 site in Ban Bueng, Chon Buri province. This further increases our production capacities in tandem of our anticipated needs in the coming years.
Our first factory at Rojana is into its second year of its operation and we are scheduling another 2 factories (one in Rojana and one in Ban Bueng) to start mass production in FY2024. By replicating our manufacturing capability in Thailand, it also fulfils our strategic intent to develop a robust Business Continuity Plan (BCP), we safeguard our customer needs.
We have also relocated our businesses at the Wang Noi (Ayutthaya) factory into our Rojana facility in Ayutthaya.

OUTLOOK

Aerospace

Global air passenger traffic has exhibited steady recovery in the past year. The International Air Transport Association1 reported that air passenger travel has recovered to 88% of pre-pandemic level (2019) as of March 2023. This is largely contributed by the reopening of China and easing of travel restrictions. In addition, Asia Pacific carriers have also experienced strong recovery with a significant increase in international passengers between the region and the rest of the world.
Airbus and Boeing have delivered a total of 1,141 aircraft in 2022, a 17% increase from 2021. Forecast International Inc.2 estimated that commercial aircraft production in 2023 would be in the order of 1,200 to 1,300 aircraft. The combined order backlog of Airbus and Boeing commercial aircraft remained healthy at approximately 12,600 units3 as of 31 March 2023. This translates to a backlog of 9.1 years for Airbus and 6.6 years for Boeing at pre-pandemic 20184 delivery rates.
The demand for single aisle aircraft products remains strong. However, the Aerospace industry is suffering from some supply chain issues as materials suppliers face challenges in ramping production rate back to pre-pandemic levels. We are monitoring the situation, actively engaging our customers and suppliers to mitigate risks and optimise our production.
  1. International Air Transport Association (IATA) represents some 300 airlines comprising 83% of global air traffic.
  2. Forecast International Inc is a provider of market intelligence forecasting, proprietary research and consulting services for the worldwide Aerospace, Defence, Electronics and Power Systems industries.
  3. Boeing’s order backlog figures refers to unfilled orders before ASC 606 adjustment.
  4. Aircraft deliveries in 2022 was partially affected by the suspension of deliveries of Boeing 787 due to concerns raised by FAA, hence 2018 delivery rates were used for the comparison.

Equipment

According to Semiconductor Equipment and Material International (SEMI), global fab equipment spending has achieved a record high of USD98 billion in 2022. Due to the weaken chip demand and higher inventory of consumer devices, fab equipment spending in 2023 is forecasted to decline to USD76 billion, before recovering to USD92 billion in 2024.
Notwithstanding the short-term dip, the long-term business drivers of semiconductor industry remained intact. Mega trends in digitalisation and electrifications will continue to spur growth in cloud computing, high-speed network connectivity, artificial intelligence (AI) and electric vehicles, thus fuelling demand for semiconductor chips. Governmental efforts and initiatives to onshore the production of semiconductor chips in the US, EU zone, Japan, Korea and Taiwan, have also triggered increased spending in semiconductor production equipment.
We are expanding our production capacity in Thailand in response to our customers’ demand forecasts and commitments. We are working closely with customers and suppliers to mitigate risks and will continue to pursue new business opportunities that meet our strategic and business requirements.