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FY2018 was a year of reaping the fruits of our harvest. After spending more than RM100 million in CAPEX in FY2017 and relentless efforts in bringing our NPI into mass production, we saw some good results with our light sensors ramping up nicely in second half (“2H”) 2017. While we expected the momentum to continue into first half (“1H”) 2018, there was some supply chain inventory adjustments and an expedited generation upgrade of the light sensors which resulted in low volume loadings for a few months. I am glad to report that despite all these challenges, it was another successful year for the Group, closing with revenues of RM328 million and a net profit of RM70.1 million, representing a 8% and 37% increase over FY2017 numbers.

As the result of successfully developing and ramping new light-sensors and gesture-sensors that were designed-in by our end customer as standard features in our customer’s newly launched devices and accessories since last year, our success as a key supplier and co-development business partner became our most outstanding accomplishment for our Group. We have also been delivering total customer satisfaction in quality and delivery despite unprecedented demand-volatility and poor-visibility in product loadings. Our massive CAPEX investment of RM107 million in FY2017 and RM35 million in FY2018 to support our new sensors manufacturing and development have proven to be strategic with excellent ROI for our Group.

In the midst of various new product start-ups and steep production ramps, our Operations teams have continuously and successfully developed and pursued new co-developmental and diversification businesses with encouraging foundation laid for FY2019 and beyond. Some of the new developments that are moving into various stages of qualifications include next generation sensor products and bio environment sensor, 5G related components and 3D components for a niche industry.

GLOBETRONICS SDN BHD/GLOBETRONICS MANUFACTURING SDN BHD/GLOBETRONICS (HK) LIMITED

Our Group’s sensors division excelled in FY2018 as we continued to build on the breakthrough of FY2017’s qualification of new products. While short product life cycles and upgrades are expected in the industry, the upgrade to the next generation sensors was quicker than normal, happening in Quarter 1 2018. The result was having a severe volume drop from March to May 2018 period when the products were transitioning, while at the same time having to strike a fine balance of maintaining resources and relentlessly containing costs as we await the ramp up of the next generation starting in June 2018. While this was happening, we also had to construct a new production floor on top of our existing building to cater for new equipment coming in as our sensors line was full. The first phase was completed in July 2018 to cater for the new equipment while the remaining phases of the construction were completed only end of 2018, which then provided us additional manufacturing space of 25 thousand square feet that would be the commitment to our customers for new projects that would commence in FY2019.

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The gesture sensor for the wireless accessories have seen very stable volumes and proceeded to see a further spike up in volume of more than 50% during the year. Our customers have indicated further strong upside potential for these volumes in FY2019, and we may have to invest additional CAPEX to cater for the additional volume growth.

For existing and matured sensor operations, the proximity sensor volumes have dropped significantly and were negligible from 2H 2018 as new phone models are launched and new technology is introduced. The motion sensor shows strong and stable volume as the new product of the end customer is doing well in the market.

Our wafers and optical lens processing segment did not do well and experienced soft loading throughout FY2018. Soft demand from our customers and tariffs imposed from the US-China trade war resulted in volatile loadings and volumes grinding lower over the year.

Our team had done an outstanding job in fulfilling all customer-orders with 100% on-time-delivery record in the midst of unprecedented demand-and-delivery swings as dictated by our most important and yet uncompromising customer.

GLOBETRONICS (KL) SDN BHD (“GKL”)

FY2018 must rank the toughest and most challenging year for GKL due to the relentless price erosion and cost reduction demands from our customer as it seeks to fend off competition that is taking its market share in the timing devices segment.

The change in a new government for Malaysia has seen the fulfillment of one its election promises on increasing the minimum wage. Minimum wage in Malaysia has gone up from RM1,000 to RM1,100 in January 2019, and is set to increase to RM1,500 over the next few years. Our operations in KL also happen to be one of the most labor intensive in the Group.

GKL would face the non-ideal situation of having to fulfill the customer’s cost down request while at the same time grappling with cost increases arising from the minimum wage rise. As a result, we have mutually agreed with our customer to transfer out some of the product lines from GKL starting from 2H 2018.

Going forward, we would do a business evaluation process on all our GKL lines to realign our business portfolio so as to anchor ourselves into the future by actively pursuing new businesses that are non-labor intensive and of new technology.

ISO TECHNOLOGY SDN BHD (“ISO”)

It was a relatively flat year for ISO in terms of financial performance but with breakthroughs in new product introduction. The LED business division saw growth from the fibre optics related product and also a stable contribution from the niche general lighting product.

The breakthrough for ISO came in the form of the successful qualification and mass production of the automotive headlamp which started mass production in October 2018. This was after more than 2 years of cumulative hard work where many samples, prototype builds, process design and redesign hand carry evaluations were carried out before the mass production was eventually successful. With this breakthrough, the automotive headlamp module that we manufacture would see us now having an exposure to the coveted automotive segment of premium car models.

The next step for us would be to continue working with our customer to stabilize and expand our production base, as well as to work on reducing the cost of production.

In terms of the bio environment sensor, we are making progress with our customers, moving into prototype and sample builds with a potential mass production expected by 2H 2019.

Prospects

We are cautiously optimistic of our prospects for FY2019 and beyond. Progress continues to be made on our light sensors where we are expected to build a new generation this year, and expectation is that it will be adopted into the smart device of our customer by 2H 2019.

For gesture sensor, we continue to see solid demand in our loadings as the end product of wireless device is gaining traction in the marketplace. The sensors are expected to see another sizeable jump in loadings starting in Quarter 2 2019.

Our automotive headlamp product has gone into mass production and its process and yields are stabilizing well, meaning we should be ready to install new capacity in 2019. Our customer is working to further diversify its applications to further expand its demand base.

The looming arrival of 5G would also open the doors to many new applications and enabled the connectivity of many devices, mainly through sensors where we have a strong exposure. IoT, AR, VR, autonomous driving etc. are inching more towards reality and not just buzzwords, and for our side, we are also positioning ourselves for the potential growth in these many exciting areas.

We are also optimistic with the other new projects and new customers. The qualification plan is progressing well and is on track for mass production by last quarter of 2019.

Risks

The most uncertain factor affecting the mood globally would be the US-China trade war. While the trade war had not impacted our operations directly in any way, the uncertainty has caused a hit to consumer demand as well as delayed business investment decisions, resulting indirectly in a slowdown in volume loadings across most of our product lines. The end customer of our sensor products have lowered guidance on the volume shipments since Quarter 4 2018, and the ripple effect is being felt across the supply chain. During this time, we would have to manage our operational costs very closely as resources would have to be retained for a potential steep ramp from June 2019 onwards as the end customer prepares for the customary product launch in the second half of the year.

The quartz crystal timing device business would cause a near term impact to our revenue growth as we readjust our portfolio to phase out some of the lines due to price erosion and the high labour content elements exacerbated by the increasing wages in Malaysia. This adjustment is expected to be completed by March 2019 and thereafter some manufacturing space would be available for us to pursue new higher value added, less labor intensive and more margin accretive products to rebalance our business portfolio. Two discussions are in successful, the space will be occupied by 2H’19.

Due to the uncertain global economic outlook and the current volatility in near term forecast, we have adopted a very cautious approach on all new CAPEX investments. We have stepped up certain aspect of customer commitment and assurance before each new investment. This win-win approach will help to ensure our strong record of effective CAPEX return and protection.