Industry Overview

7. PROSPECTS ANO FUTURE PLANS 7. PROSPECTS ANO FUTURE PLANS 7.1 Industry Overview The following industry overview was quoted from a number of sources as indicated herein. 7.1.1 Overview of the World Economy World output, projected to grow by 4.6% in 2004, is close to matching the strong global growth of 4.7% at the beginning of the new millennium, the highest in the last two decades. The global economy recovered from the adverse effects of the 11 September incident, which drove the world into recession in 2001, and the subsequent fallout from the Severe Acute Respiratory Syndrome (SARS) epidemic, as well as the war in Iraq to attain broad-based growth. This recovery was supported by the accommodative monetary and fiscal policies pursued by major economies which revived confidence to fuel global growth. The continued strengthening of the global economy is mainly driven by sustained consumption and export growth in the United States (US) and Japanese economies. Elsewhere, the vibrant economies in the Asia-Pacific region, in particular China and to a lesser extent India, further supported the strengthening of global growth. Amidst this optimistic development. world Inflation continued to remain benign despite concems over rising oil prices. The growth momentum in the global economy in 2005 is expected to decelerate slightly as major economies tighten monetary policy to contain inflationary pressures. Concerns over the possibility of higher oil prices and the slowing down of China’s economy are other factors that can dampen growth. Notwithstanding these uncertainties, it is anticipated that the Federal Reserve Board would pursue a measured approach in raising interest rates. As for oil price hikes. the effort of the Organisation of the Petroleum Exporting Countries to raise supply to 26 million barrels per day effective 1 August 2004, will help contain the price increases. Against this backdrop. growth in the US is expected to moderate to 3.5%-4% (2004: 4.5%·4.7%), other emerging markets and developing economies at 5.9% (2004: 6%), while Japan is also expected to grow by 2.4% (2004: 4.5%). In contrast, recovery in the euro area is anticipated to strengthen further to post a real GOP growth of 2.3% (2004: 2%) with a gradual pick-Up in domestic demand aided by favourable financing conditions. Overall, global growth is projected at 4.4% in 2005 (2004: 4.6%). (Source: Economic Report 2004/2005)
7.1.2 Overview of the Malaysian Economy Malaysia’s growth momentum continues into 2004 after recording a strong growth in 2003. Unlike 2003, when the global economy was affected by the war in Iraq and Severe Acute Respiratory Syndrome, the external environment in 2004 has improved markedly with upswing in the global electrooics demand as well as favourable commodity prices. This enabled the Malaysian economy to expand steadily from 7.6% in the first quarter of 2004 to 8% in the second quarter, the highest since the third quarter of 2000. 7.1.3
The robust domestic economic activities. which supported growth in 2002 through to 2004, are funher augmented by favourable external enVIronment. Of significance, the domestic seclor is buoyed by the expansion in private consumption and investment activities. The manufacturing sector registered a solid growth of t2.3% during the first half of 2004. while the services sector expanded strongly by 6.8% in the same period. With the Leading Index pointing towards further expansion in the second half of the year. both sectors are envisaged to contribute significantly to the economic growth. The build-up In international reserves arising from larger current account surplus and inflows of foreign capital continues to strengthen Malaysia’s macroeconomic fundamentals. Given this favourable scenario, the Malaysian economy is set to surpass its earlier estimate of 6.0 -6.5% and post a stronger growtll of 7% on 2004 (2003: 5.3%). Entrenched domestic economic activities, coupled with a fairly favourable external environment. are expected to drive growth into 2005. Strong output growth is expected 10 emanate from aU sectors, led by manufacturing and services with an increasingly higher contribution from private sector expenditure. Consequently, Malaysia is set to achieve another year of healthy growth of 6% in 2005. (Source: Economic Repor1200412OO5) Overview of the Manuracturing Sector and the EJectronics Industry Output of all sectors is envisaged to increase with the manufacturing and services sect(}(S leading the economy. After expanding higher by 12.3% in the first hatl of 2004, the manufacturing sector is estimated to grow by a sturdy 10.5% for the year {2003: 8.3%}. The sector is expected to provide a strong impetus to the economy, given the overall bener world economic outlook and continued global electronics demand. The services sector, with the largest Gross Domestic Product (GOP) share of 57.1%, is envisaged to expand at a faster rate of 6% (2003: 4.4%). with all sub-sectors recording positive growth. Growth 01 the manufacturing sector accelerated since September 2003, underpinned by double digit and broad·based growth in both expon and domestic· oriented industries. Favourable external environment with continued strong growth in China, coupled with the firm recovery in the US and sustained recovery in Japan, fuelled the higher demand for manufactured goods. particularly for electronic products. Meanwhile, growth in domestic-oriented industries strengthened on the back of the improved economic performance. With these positive developments driving the manufacturing sector, its contribution to GOP growth is expected 10 increase. Overall capacity utilisation of the manufacturing sector was sustained at a high level with 42% of the manufacturers producing at near-maximum capacity (B1%·100%) during the second quarter of 2004 compared with 35% in the first quarter of the year. The percentage of manufacturers with capacity utilisation in the range of 61%-80% has edged up to 40% from 37%, following stronger demand. The expansion in output is reflected In the 18.6% increase in manufacturing sales for the tirst half of 2004 to reach RM192,559 million (January-June 2003: RM162,331 million). Output of export-oriented industries recorded a robust growth of 21.5% for the first half of 2004 (January-June 2003: 4.6%). Electrical, electronics and machinery as a group registered the highest growth in tandem with the cyclical upturn in global electronics demand. The uptrend in global demand for semiconductors pushed the output of electrical and electronics (E&E) sharply by 24.4% during the first six months of 2004 (January-June 2003: 4.3%). In addition, greater outsourcing activities as well as software developmen1 helped to enhance the sector’s growth. Export earnings of E&E increased sharply by 17.4% during the first seven months 01 2004 (January-July 2003: 1.9%). Higher export earnings were attributed to positive increases in all major sub-sectors such as semiconductors, electronic equipment and parts as well as electrical products. The moderation in export growth of semiconduclors by 7.1% (January..July 2003: 26.1%) was partly due to base year effect. The semiconductor sub-sector, which gained from higher spending on leT industry. has moved along the technology value chain and is now producing the latest generation of integrated circuits using advanced technologies in its packaging. Demand for Malaysia’s semiconductors is expected to increase further as the book-to-bill (BTB) ratio of North America’s electronics equipmem industry has continued to stay above one point since October last year. The US remains the largest market. importing more than one-quarter of Malaysian-made semiconductors. As for electronic equipment and parts, a significant turnaround of 21.4% (January­July 2003: -11.1 %), was achieved mainly due to higher exports of automatic data processing machines and parts as well as printed circuit boards. Similarly, value of electrical products recorded a substantial increase of 27.9% (January..July 2003: ­6%), contributed by strong export earnings in industrial and commercial electrical products, machinery and equipment as well as consumer electrical products. Output growth in 2005 is expected to be broad based with the manufacturing and services sectors remaining the growth drivers. The manufacturing sector is envisaged to expand strongly, propelled by strengthened domestic demand and sustained performance ot the external sector. Overall production is expected to grow more than 10%, while exports at 11.3%. Buoyed by the upswing in the electronics market, E&E will continue to grow at a steady rate despite the overstated fears of an electronics slowdown. Domestic oriented industries are also expected to expand further, particularly in food and transport equipment. (Source: Economic Report 2004/2005)
7.1.4 Fastener Industry The fastener industry is a complex one especially from a distribution point of view. Fasteners are typically sold and re·sold several times before it reaches the end~user (final consumer)_ Alternatively, it can also be sold directly to electrical goods manufacturers or assemblers. construction companies. automotive manufacturers, aviation equipment manufacturers, etc. THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK In addition, fasteners can be broadly categorised as commodity type and specialty type. For the commodity type. it is commonly found in the form of screws. nuts, bolts and washers. These type of fasteners are sold in bulk and its main application is in the construction industry. The specialty types are those that does not come in standard size or forms, rather it is designed specifically for the application on a type of apparatus. SCFs falls under the specialty type category. The specialty type category can be further categorized as application-specific and aerospace grade. The chart below shows the categories of fasteners:­Fastener I

The SCFs are categorised as the application specific fastener under the heading of specialty type. The chart below shows the percentage of the market share for all the different types of fasteners in the market­___-e••­
The wand market for application specific fastener is estimated at 8% of the fastener market, which amounts to USD$3.36 billion as outlined in the chart above. These fasteners consist of the self-clinched fastener (also known as captive fastener in Europe) and other specific-designed fasteners. The largest applications of these fasteners are on the E&E industry. The bulk of SCF application is in the assembly of personal computers (“PCs1, servers, flat panet displays rFPDs”) and uninterrupted power supply units (“UPS”), which are within the sub sectors of the E&E industry. The global SCF market for 2003 is estimated at USD605 million and is expected to grow at 12% per annum in tandem with the specific application of SCFs on PCs, servers, FPDs and UPS. The SCF market in Malaysia is at the growing stage, with a market size of RM5.94 million in 2003 and reach RM11.71 million in revenues in 2008. The SCF market in Malaysia is characterised by relatively low price sensitivity, stable price range, low degrees of competition and technical change, high barriers to enlry and stable cuslomer loyalty. The drivers of growth in the SCF market in Malaysia are:­(a) Growth Momentum for the E&E Industry In the third quarter of 2003, the investments for the E&E industry amounted to RM634.7 million. The E&E industry accounts for nearly 40% of Malaysia’s manufacturing activities and the highest export earner, recording 65.6% of Malaysia’s total export for the first six (6) months of 2003. The turnaround for the E&E industry in April 2002 has spurred the E&E sector to grow at the rate of 4% in 2003. In turn, the manufacturing industry recorded a high growth rate of 8.2% in 2003. Considering the strong economic fundamentals, it is expected lhat Ihe E&E industry will continue to grow at rates which will be considerably higher than in 2003. as the demand for E&E globally is expected to grow at 10% to 12% in 2004. (b) Demand for InfonnatJon and Communication Technology (“leT”) Peripherals The demand for ICT peripherals, including PCs. servers, routers and other telecommunication products, is expected to grow at the rate of 15% to 20% throughout the period from 2003 to 2008. The growth is expected to come from emerging economies as well as technology. (C) Demand trom Overseas for Lower-Priced SCFs There are demands tram overseas for lower price SCFs, as manufacturers compete to lower production cost to capture a larger market share globally. (eI) Changing Lifestyle Changing lifestyle. such as lhe use of 1he Internet and the increasing trend towards usage of high-end consumer electronics equipment such as plasma television sets as part of home entertainment, will spur the demand for high technology products that uses SCF. As li1estyle products become less costly, the impact of this factor is expected to increase. The marl<et size of SCFs in Malaysia is expected to grow at 15% per annum. In view of the improving economy, living standards and lifestyle, it is expected that conventional television sets and cathode ray tube (CRT) monitors will be obsolete in the future. Bearing in mind that there are millions of television sets and PC displays that can be replaced in the local market. the demand for SCFs is expected to grow further ~st·2008. The manufacture of SCFs is considered to be a sound and highly focused business model. and coupled with a strong international platform, the Group is set to benefit from rising demand for outsourcing from large customers abroad. Malaysia’s strong competitive position is likely to attract more foreign investors in the E&E industry, providing the necessary impetus for local contract manufacturers and metal stamping companies to grow. It is foreseeable that more foreign companies will outsource to Malaysia, especially in light of the (ocal E&E industry’s move towards high value and high technology. Henceforth, it is expected that the demand for local SCFs have the potential to grow above the forecasted average growth rate of 15% per annum. (Source: Frost & Sullivan -Strategic Insight of the Malaysia Self-Clinching Fastener Market, 19 Apri/2004)

7.2 Market Outlook and Prospects The Group is prtncipally engaged in the manufacture of SCFs and electronic hardware. The SCFs serves as an easy and cost-effective production fastening method. Through the advent of technology as well as R&D efforts. SCFs are now utilised in a wide range ot industries. including electronics, computer, data I telecommunications, medical. automotive, marine, aircraft and general manufacturing. SCFs’ wide range of application is able to capture a wide customer base spanning both traditional and high technology economies around the world. The application or usage of SCFs is very wide -they are found in mosl electrical appliances. from computer hardware to lonery ticket terminals, from mobile telephones and other wireless telecommunication devices to cellular base transmitters, from digital paint scales to bicycles, from automated leller machines to medical imaging devices. One of the core users of SCFs is the electronics and computing industry. At the turn of the millennium, there was a fast emerging trend of major OEMs in the IT and telecommunications industry relocating their production base to low cost manufacturing centres in Asia. This was mainly a result of the devaluation of regional currencies in 1997 which enhanced the competitive advantage 01 manufacturers operating from Asia. The OEMs were also capitalising on the rapid grolNth in this region due to the rise in computer literacy and urbanisalion. The directors of Techfast Holdings believe that the ongoing economic expansion within the developing nalions in Asia, particularly China, will be the major factor fueling global growth in the fastener industry. The demand for fasteners is expected to rise in line with continuing industrialisation efforts in these countries, and electrical and electronic equipment manufacturing, and construction activities will be amongst the fastest growing end user markets for fasteners, with demand benefiting from gains in production of items such as mobile telephones and personal digital assistanls. The directors of Techfast Holdings are of the belief that the glObal fastener industry will continue to grow in view of the growing demand for electronic and electrical products and information technology products. The directors of Ihe Company are of the view that the demand for application specific standard fasteners will grow at a faster pace than other standard fasleners as more OEMs replace commodity items with specialised designs, such as panel fasteners, which the Group has recently introduced into its range of products. The directors of Techfast Holdings believe that advances in induslrial fastener technology will be able to stave off functional competition from alternative joining technologies such as adhesives, clinching and welding. Innovations in fastener design include new generations of self-locking and self-sealing fasteners, units which can be installed without the use of tools. and fasteners fabricated from advanced alloys. composites and plastic materials. In view of the above, Techfast Holdings is poised for further growth and is expected to be able to meet new challenges In the fastening industry. THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 7.3 Summary of the Five-Year Business Development Plan The following is a summary of the Five-Year Business Development Plan dated 15 April 2004 prepared by Techfast Holdings for the purpose ot inclusion in this Prospectus. 7.3.1 Plans and Strategies Since incorporation. the Group has been focused on moving up Ihe SCF industry value chain to becoming a manufacturer with an established brand name which is readily recognised by customers and offering a wide range of products known for its consistency in product quality. To achieve its objectives, the Group will adopt 1he following strategies:­(a) Increase its sales volume; and
(b) Establish its brand name.

Sales volume grOW1h will be achieved through geographical market expansion, technology upgrades, increase in manufacturing capacity. competitive pricing, introduction of new higher value-added products and establishment of alternative channels. The branding exercise will also involve the establishment of the TFM'” brand as one which is synonymous with product quality and supply reliability.
7.3.2 Research and Development Policy The Techfast Holdings Group aims to create a niche position in providing revolutionary solutions in specific areas of sheet metal assembly through design innovation, engineering process innovations and development of higher value­added products with optimal cost efficiency. The Group’s R&D initiatives are focused on the following areas:­(a) Production process improvement;
(b) Design process; and
(c) Machine usage and technological upgrades.

 

7.3.3 Human Resource Policy In line with the Group’s expansion plan, the Group will continue to employ additional stafl to support the level of business and operations. The Group recognises the importance of its employees and regularly updates them on the latest developments in the industry as well as increases their know-how by sending them to various courses throughout the year. The Group has ambitious plans for growth and with the higher profile achieved through the listing exercise, the ability of the Group to attract qualified consultants and knowledge workers in the future to cater for the anticipated growth will be enhanced. In recognition of the employees’ contribution to the Group’s success, the ESOS wHl be implemented in conjunction with the Company’s listing on the MESDAQ Market.

 

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