SFP Tech seeks to mend itself

AFTER what seems to be a turbulent start to the year, marked by a sharp decline in its market value and its first-ever quarterly loss, SFP Tech Holdings Bhd is working to regain its footing.

But the road to recovery could be bumpy.

The engineering supporting service provider shocked investors when it booked its first ever quarterly net loss of RM21.33mil for the fourth quarter ended Dec 31, 2024 (4Q24).

The loss was largely due to a RM24mil provision for an ‘expected credit loss’ tied to a major China-based semiconductor customer.

The weaker-than-expected results along with a sell-off of technology stocks sent SFP Tech’s share price plunging from a high of 74 sen in January to a meagre 29 sen now, wiping out about RM1.09bil from its market capitalisation.

Group managing director and major shareholder Keoh Beng Huat says payments from the affected customer had been prompt when business began in 2023.

However, delays emerged in 2Q24 as China tightened capital outflows amid the trade war with the US, extending payment terms from the original 60 days to 90 days and eventually 180 days.

“This customer is a state-owned company and they buy equipment in the hundreds of millions of ringgit. My guess is that when these companies spend large sums of money on importing equipment, the Chinese government will question why can’t they develop a local source instead. This is why there are monetary regulations imposed on their cash outflows,” he tells StarBiz 7.

There is the possibility, Keoh reveals, that SFP Tech will have to make further provisions in the upcoming quarters should the payment delays persist.

“They were placing orders aggressively throughout last year. Each quarter, they ordered nearly RM24mil worth of goods but only paid around RM10mil to RM15mil. So the outstanding amount accumulated quickly.

“If they continue to pay us at this rate (RM10mil to RM15mil) and our external auditors enforce the expected trading loss formula, we would have to make more provisions,” Keoh explains.

Nevertheless, he maintains that the group remains confident of writing back the provisions as the Chinese company is not a failing business and its key decision-makers are still in place.

Although SFP Tech halted shipments to the company last December, Keoh explains that the latter still continues to make payments and has even provided SFP Tech with a scheduled payment plan.

“We would like to emphasise that every single cent will eventually be collected. The only question now is the timing of the payments. We are confident they will fulfill their obligations, being a state-owned entity. Also, they must settle outstanding payments to receive their remaining orders from us,” he says.

SFP Tech, which manufactures parts for semiconductor equipment makers, is now increasing its focus on US and European markets.

At the same time, Keoh says the group is not severing links with the China market, but scaling down its business there.

One challenge, Keoh explains, is the difficulty to procure some components from the US or Germany, particularly if the end product is intended for China.

“All the big players are in the US or Europe and Chinese semiconductor equipment makers still need to rely on these countries to obtain certain high-end instrumentation.

“As a public company, we must make sure that everything is properly declared or else it will come to haunt us later on. Given these constraints, it is impractical for us to continue supporting certain Chinese customers because we cannot build a complete system for them. Hence, we are focusing more on the US market,” he says.

For the financial year 2024 (FY24), China accounted for 64.37% of the company’s total revenue while the US contributed 10.71%. However, Keoh expects China’s share to drop to below 10%, with US revenue contribution projected to exceed 50% and Europe around 20% this year.

“Even after deferring all orders from China as of January, our order book still stands at RM56mil,” he says.

Keoh also believes that the US’ reciprocal tariffs, expected to be implemented on April 2, will have minimal impact on the company.

He explains that most of the solutions the group builds for its US customers are shipped to their Asia-based facilities, such as those in South Korea and Singapore, rather than to the United States.

Earlier this month, SFP Tech announced that it would shelve its plans to transfer to the Main Market of Bursa Malaysia following its 4Q24 results.

However, Keoh assures that the plan is not abandoned and that the group’s current priority is to grow the business.

A key focus will be on expanding its manufacturing of high precision parts for semiconductor equipment. SFP Tech expects revenue contribution from this business to rise from 5% in FY24 to more than 35% in FY25.

To support this, the group is setting up a fourth plant, dedicated to advancing its high-end machining capabilities for semiconductor equipment component production.

The first phase of the new plant is targeted to begin operations by 2027.

“Last year, we secured six to eight new customers and built the first article for them. They have tested the first article and have now begun to place volume orders from us,” Keoh says.