SFP Tech scales up chip value chain

PETALING JAYA: SFP Tech Holdings Bhd is stepping up its push into the front-end semiconductor equipment market, while artificial intelligence (AI)-driven investments continue to drive demand, lifting its outstanding order book to about RM125mil, more than double a year ago.

Managing director Keoh Beng Huat said the precision engineering group, traditionally focused on supplying high-precision components for back-end semiconductor equipment, is now working with two front-end semiconductor equipment customers.

Keoh said one of the customers is a player involved in extreme ultraviolet or EUV lithography, for which SFP has secured its first article build involving control beams.

“We have just gotten a first article build for a very big front-of-line customer. That means we are making the first test item to see whether we have the capability to deliver it,” he told StarBiz.

Asked whether SFP serves hyperscale data centre operators, Keoh said the company is in discussions on several related projects.

“We are in discussion with some related projects and any relevant announcements will be made in due course,” he said.

The group’s expansion into front-of-line applications has been supported by the global AI boom, which continues to drive investments throughout the semiconductor supply chain.

The stronger demand has translated into a record order book.

Keoh said SFP’s outstanding orders currently stand at about RM125mil, more than double the level recorded last year, while its book-to-bill ratio remains above 1.15.

Semiconductor-related projects account for RM50.1mil, or 43.4%, of the order book, while electronics manufacturing services or EMS projects contribute RM14.7mil, or 12.7%.

SFP currently operates three manufacturing plants in Penang with a combined operational footprint exceeding 466,000 sq ft and 316 production machines.

Its manufacturing fleet includes more than 180 multi-axis computer numerical control (CNC) machines, predominantly five-axis systems, supported by precision machining capabilities such as wire-cut electrical discharge machining or EDM and super drilling.

The group has since expanded into large-format machining, with equipment capable of machining workpieces measuring up to eight m by four m.

It has also invested in specialised surface grinding equipment capable of processing components up to three metres in length, which Keoh described as among the group’s unique manufacturing capabilities.

Keoh said these capabilities enable SFP to manufacture highly specialised components for advanced semiconductor equipment, particularly in the backend, while increasingly supporting front-end semiconductor applications.

“Those are for very high-end back-end semiconductors. And also now, we are making this offering to a lot of front of line.”

Although semiconductor remains SFP’s largest business, contributing about 65% of its topline currently, Keoh expects the proportion to decline modestly by year-end, not because semiconductor demand is weakening, but as other business segments expand at a faster pace.

Still, to support future growth, Keoh said the group still has sufficient room to expand its operations.

He said SFP has around 130,000 sq ft of available production space, with about half expected to be utilised by year-end.

According to Keoh, SFP’s equipment utilisation currently stands at around 85%, with most machines operating on one extended shift.

However, manpower remains the main constraint, he said.

SFP currently employs about 530 people and Yeoh expects to increase the workforce by between 10% and 15% as production ramps up.

The ongoing ramp-up in capacity and production, however, was accompanied by higher costs in the latest quarter, weighing on profitability despite stronger revenue.

For the first quarter ended March 31, 2026 (1Q26), revenue rose 27.3% to RM26.28mil from RM20.65mil a year earlier, but net profit fell 71.6% to RM2mil from RM7.04mil previously.

Keoh attributed the weaker earnings to higher raw material costs, particularly aluminium, as well as several non-recurring and timing-related factors, including provisions for slow-moving inventories, higher operating costs from scaling up production, a higher effective tax rate and elevated other operating losses.

Keoh said the group expects the pressure to ease as it scales up production and passes higher raw material costs on to customers, with gross margins targeted at around 50%.

“We were absorbing most of the increase. But now, we are going back to customers and telling them that we need to increase prices. Hopefully, we will still be hovering around 50% gross margin.”

Keoh expects profitability to improve progressively throughout financial year ending Dec 31, 2026 or FY26, as production volumes increase, newly secured programmes enter the delivery phase, operating leverage strengthens and ongoing cost optimisation initiatives take effect.

To support the higher order volumes, SFP had RM17.98mil in committed capital expenditure as at 1Q26, mainly for new CNC machines, robotic assembly lines and related fabrication equipment.

Over the next two to three years, the group expects most of its capital spending to be channelled towards manufacturing plant upgrades and precision machinery, as well as research and development and test facilities for its automation segment.