SAM Anticipates A Gradual Rebound In The Aerospace Sector

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Despite the negative impact of the Covid-19 pandemic on the airline industry and related players, aerospace products manufacturer and precision engineering company SAM Engineering & Equipment (M) Bhd is in a good position, owing to a healthy pipeline of equipment orders and the expectation of a gradual recovery in the aerospace industry.

“At the moment, the aerospace sector is recovering due to the progressive reopening of most major economies, which would help the revival of aircraft demand,” SAM Engineering said in a bourse filing last Wednesday, citing the minutes of its 27th annual general meeting held on Aug. 21.

With strong semiconductor sector participation, the company anticipates a reasonably positive outlook for its equipment segment. It operates in two segments: aerospace products and aerospace equipment (semiconductor and data storage devices).

“While the aerospace segment requires significant investment and lengthy development cycles, it has a more stable operating margin compared to the equipment segment, which has demonstrated strong profitability in recent years despite being more volatile,” the Penang-based company said, adding that both segments are expected to perform well.

“According to market analysts, the semiconductor equipment business will expand by double digits in 2021 and 2022, with the addition of 29 new [fabrication plants]. The group stated in answer to shareholder questions that “strong demand for semiconductor equipment will support the growth of our equipment division.”

SAM Engineering, a part of Singapore Aerospace Manufacturing Pte Ltd, has an RM2.4 billion order book as of March 31. Regarding order breakdown, the company stated that its aerospace industry continues to account for the majority of its existing order book, which is expected to last up to ten years. “To date, we have never lost any significant strategic projects,” the statement continued.

The company explained that it has been actively redeploying resources from the aerospace business to support the equipment business by supplying components, subassemblies, and equipment to support the manufacturing of semiconductors and data storage devices for customers at the semiconductor equipment segment’s front end.

SAM Engineering noted that its net profit margin of approximately 10% is lower than those of its listed peers, including Pentamaster Corp Bhd and Mi Technovation Bhd, which have net profit margins of approximately 20%.

“As a contract manufacturer, we fabricate components and equipment to our customers’ specifications. We feel that our profit margins are competitive with those of other contract manufacturers,” it stated.

There is evidence of gradual recovery

SAM Engineering said it anticipates income in its aerospace segment to gradually rebound in concert with the recovery of short-haul flights for domestic travel and long-haul flights globally.

The aerospace business reported a loss before tax of RM22.1 million in FY2021, down from a profit before tax (PBT) of RM37.3 million in FY2020. Meanwhile, the equipment section reported a profit before tax (PBT) of RM103.98 million in FY2021, up from RM62.3 million in FY2020.

“At the moment, we do not anticipate any new aerospace projects. While the aerospace segment’s order book is expected to endure up to ten years, the fall in orders last year was mostly due to weaker demand throughout the whole aircraft industry as a result of the Covid-19 pandemic,” the business stated.

SAM Engineering reported that its clients Airbus and Boeing delivered 723 aircraft in 2020, with market analysts projecting aircraft production of between 900 and 1,000 units in 2021 and a restoration to pre-Covid-19 levels of air passenger traffic by 2024. “Demand has increased in comparison to last year,” it stated.

SAM Engineering stated that despite having to work at a reduced capacity during the several movement curbs, the first of which was the March 18, 2020 Movement Control Order (MCO), the firm was able to meet delivery commitments to clients on schedule and maintain a smooth operation.

Management discovered how to manage and mitigate the MCO’s disruptive impacts, it observes, by recruiting buffer personnel to replace quarantined employees and diversifying its supplier base rather than relying largely on single-sourced suppliers to avoid supply chain disruptions.

Companies will likely be more cognizant of potential supply chain interruptions and business continuity planning following Covid-19, according to SAM Engineering. “As a contract manufacturer, the group will need to have the ability to operate across many geographies and business areas in order to diversify risks and reduce supply chain disruptions.”

The equipment segment contributes to the company’s financial performance

SAM Engineering’s net profit for the first quarter ended June 30, 2021 (1QFY2022) grew by 66.22 percent to RM11.98 million from RM7.21 million in 1QFY2021 but more than half from RM24.59 million in 4QFY2021.

Revenue increased 18.6 percent year on year to RM202.78 million from RM170.98 million the previous year, but declined RM276.43 million quarter on quarter.

According to Bursa Malaysia, the company’s improved year-on-year earnings were due to increased profit contribution from its equipment segment, which saw higher sales due to increased demand from semiconductor and data storage customers, and were partially offset by lower profit contribution from its aerospace segment due to lower government grants and subsidies.

SAM Engineering said it was expanding its manufacturing activities in Thailand, where its factory is set to begin mass production in December, in order to fulfil growing demand for products in its equipment category.

For fiscal years 2019 to 2021, net profit was RM78.5 million, RM79.8 million, and RM59.7 million on revenue of RM755 million, RM938.7 million, and RM873.7 million, respectively.

In terms of dividends, the group paid a first interim single-tier dividend of 14.76 sen in fiscal year 2020 and a first interim single-tier dividend of 11.03 sen in fiscal year 2021. It distributed a first interim single-tier dividend of 17.43 sen and a special single-tier dividend of 11.62 sen for fiscal year 2019.

Bursa Malaysia issued an unusual market activity query against SAM Engineering on July 30 following a sudden increase in the company’s share price to RM10.80 from RM8.32 the day before. The corporation stated that it was unaware of any rationale for the trading activity.

The stock subsequently surged to a record high of RM16.24 on August 24, up from RM7.16 in early July, before reversing course to close at RM14 last Friday, giving the business a market value of RM1.91 billion.

Published by Zack Baharum

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