CPE Tech expedites expansion plans

CPE Technology Bhd (CPE Tech), which counts the United States and Japan as its key markets, is going ahead with plans to fast-track its expansion despite the turmoil in the global equities markets, which has also seen several big tech companies being sold down.

The company, which was listed on Bursa Malaysia in December 2023, manufactures precision machined parts and components and provides computer numerical control machining services.

Group chief executive officer Lee Chen Yeong tells StarBizWeek that the company has not received any indications of potential impact from its customers.

“We are cautiously optimistic about prospects, given the diverse uses of semiconductors in modern technology. That said, we have a healthy balance of customers in both Japan and the United States. Even if there is some impact on our business, we believe that the negative effects can be mitigated,” he says.

The United States contributes over 40% to CPE Tech’s revenue, while 17% comes from its Japanese customers.

Apart from the ongoing Middle East conflict, the two economies were the focus this week, as fears of a looming US recession and the unwinding of the yen carry trade in Japan caused a global market meltdown on Monday.

Equity markets have retraced some of the losses but external uncertainties persist, and this could lead to shortages and increased lead times due to supply chain disruption, he adds.

Back to CPE Tech’s expansion, Lee says the initial plan was to buy land and build a new manufacturing facility to house machinery and equipment from two out of its five plants in Johor.

“This was proposed in our initial public offering (IPO) prospectus. But we have secured new customers and anticipate a pick-up in orders.

“Building a factory from scratch takes time, so we decided to buy a few detached factory units near our existing plants in mid-July,” Lee, who owns a 28.1% stake in CPE Tech, says.

The company will pay RM10mil for this industrial premise. Out of the five factories, he says Plant 1 is an old one.

“It’s been in operation for 18 years and is also located in another industrial area. Meanwhile, Plant 5 is sitting on a rented premise, so we thought of consolidating these two into a new manufacturing facility.”

The company owns the other three factories. Operations at the newly acquired industrial premise, dubbed Plant 6, are slated to go live in May 2027.

According to Lee, this will also allow CPE Tech to fulfill a new customer requirement for a segregated manufacturing facility.

It is allocating between RM15mil and RM20mil to set up Plant 6. However, this excludes the investment in machinery and equipment, which is likely to be part of the capital spending in the financial year ending June 30, 2025 (FY25).

However, Lee reckons this capacity may not be enough to facilitate growth from current and prospective customers.

“We are identifying more nearby factories to purchase. As per our new plan, the company aims to complete these purchases by end-2027. Capacity should increase by some 30%.” Currently, utilisation of existing plants is about 80% with over 10% used for developing new products.

Japan is pursuing ambitious efforts to revitalise its semiconductor industry. But with an ageing economy and shrinking skilled labour, firms are said to be looking to relocate out of Japan. This bodes well for Malaysia with its cheaper operational costs.

Elaborating on this, Lee says the company anticipates significant expansion with Customer H from Japan.

“We are currently in a trial run period producing 1,000 units per month for that customer. Following successful technical adjustments made during management’s visit to Japan last quarter, we are expecting that the customer will ramp up their orders by November this year and possibly further by May 2025.

“Besides this, we recently secured another Japanese customer, also in the trial run phase with expectations for future regular business,” he shares

On how it ensured competitiveness with local Japanese suppliers, Lee says this is bolstered by the transfer of knowledge and expertise from its Japanese partners.

“By sharing their advanced technological know-how with us, we have been able to elevate our standards and product offerings to match those of established Japanese companies.

“Moreover, we source our raw materials from the same suppliers as our Japanese counterparts, ensuring that our products meet the rigorous quality standards expected by Japanese consumers and businesses,” Lee adds.

In the United States, CPE Tech secured a new customer in the last quarter of FY24 (4Q24), although this is on an ad hoc basis for now. Additionally, it completed the first article stage for another new US customer and is waiting for the issuance of a purchase order.

“These four new customers are semiconductor players and we see growth coming from this segment going forward. Our order book currently stands at RM63mil and we aim to double that in FY25, depending on market response.”

Segment-wise, semiconductors contribute 59.3% to earnings, followed by the life science and medical devices, and sports equipment divisions.

Lee adds the company will continue to expand the customer base within the United States and Japan. It also serves customers from Malaysia, Singapore, Thailand and Germany, among others.

For 3Q24, the company posted a net profit of RM4.5mil, bringing nine-month profitability to RM8.5mil. It intends to pay at least 25% to 50% of its net profit as dividends.

Shares of CPE Tech closed at RM1.22 yesterday, translating into a market cap of RM819mil. For context, its IPO was priced at RM1.07 per share.

The firm raised RM179.58mil from its listing exercise. The funds will be used to purchase new factories, machinery and equipment, and buy raw materials. Its other major shareholders are Foo Ming and Mu Woon Chai, who hold 16.8% and 11.3%, respectively. Both are directors of the company.