KUALA LUMPUR: Dagang Nexchange Bhd (DNeX) and its Chinese partner will inject RM200 million of new capital in SilTerra Malaysia Sdn Bhd.
DNeX group managing director and SilTerra executive chairmanTan Sri Syed Zainal Abidin Syed Mohamed Tahir told the New Straits Times the capital would be used to buy equipment and upgrade machinery to meet the current technological needs.
DNeX had on July 26 completed the acquisition of a 60 per cent stake in SilTerra from Khazanah Nasional Bhd for RM168.3 million.
Beijing Integrated Circuit Advanced Manufacturing and High-End Equipment Equity Investment Fund Centre (CGP Fund) owns the remaining 40 per cent.
"We are working closely alongside our partner CGP Fund and committed to injecting new capital. This will subsequently unlock SilTerra's full potential and drive the economies of scale," Syed Zainal told the New Straits Times in an email interview.
Syed Zainal said the potential upgrades were timely to improve on SilTerra's existing manufacturing facilities and technologies to meet evolving industry demand.
"In addition, we will lead SilTerra to ready market access by leveraging on the network of our partner, including strategic customers and long-term supplier contracts," he added.
Syed Zainal expects SilTerra to contribute at least 25 per cent to group bottomline in two years' time.
"We are confident that SilTerra will be a major contributor to DNeX's earnings thus our emphasis on channelling resources in terms of expertise and financial commitment. Contribution from SilTerra is expected to account for 25 per cent or more to the group's consolidated net profit and consolidated net assets," he said.
DNeX's immediate plans to drive SilTerra's transformation include increasing plant utilisation, undertaking cost optimisation and expanding market access.
"These include initiatives to improve efficiencies and increase SilTerra's operational capacity as well as new capital investment to remove bottlenecks and improve plant utilisation," said Syed Zainal.
As owners of SilTerra, DNeX and CGP Fund have outlined several transformative measures.
"Post-acquisition, we established a Transformation Management Office to focus on implementation of these transformative measures across several key areas including operations and technology. We are leveraging on both industry experts and internal capabilities to maximise growth potential for SilTerra while leveraging on its inherent capabilities," he said.
The transformation also includes deep diving into key areas to better understand the roles and responsibilities of each team member.
"We will be assessing quick wins that could potentially generate positive results and improve SilTerra's growth where these can also serve as catalysts for the company's progress in the future," he said.
Prior to the completion of the acquisition, DNeX and CGP Fund had established a dedicated team to ease the transition progress and most importantly, accelerate their entry by managing coordination between employees and developing effective measures to tackle identified issues.
"Essentially, the transformation team is tasked to coordinate all transformation related activities and delve deeper into the integration process to determine and develop new strategies to facilitate entry of shareholders into SilTerra and most importantly, to realise the expected combined synergy.
"The team's ultimate responsibility is to work hand in hand with the management of SilTerra to establish a clear blueprint to ensure a better internal alignment while focusing on improving the company's transformation," he said.
Syed Zainal said manufacturing improvements were targeted at efficiency and cycle time in the plant as well as the reduction of waste and inventory, procurement through better sourcing and supply chain management.
He added that DNeX would identify potential savings through customer service with enhanced customer engagement and improvements on on-time delivery index technology.
"Review of technology roadmap is being undertaken along with acceleration of key technology platform to get better margins and long-term customers," he said.
Additionally, there will be an organisational structure review towards more efficient and focus structure, while revisiting SilTerra's investments and identifying bottlenecks that will allow it to achieve a steadier workflow.
This in turn will lead SilTerra to ready market access including strategic customers and long-term supplier contracts by leveraging on the network of CGP Fund.
He said DNeX and CGP Fund would review existing technology platforms and new products development process while identifying issues and opportunities for adoption of new technologies and businesses that command higher margin product.
"We will also leverage on technical experts and partners in reviewing key operational issues to further improve on operational efficiencies mainly on productivity and manufacturing effectiveness. These measures will be further supported with optimised cost control and management through holistic procurement best practices," he said.
DNeX and CGP Fund are also working on technology upgrades including micro-electromechanical system (MEMS) and silicon photonics.
This will enable a change in product mix that can generate improved business margin and ensure long-term business sustainability for SilTerra.
"We are also working on new technology with global multinational companies to develop new products that will be produced in this financial year ending June 30, 2022," he said.
Syed Zainal expects demand for chips to continue to rise, driven by the growing adoption of such technology as internet of things, 5G, artificial intelligence and electric vehicle.
"We are poised for SilTerra's growth prospects given the rising demand in semiconductor, which is expected to continue for several more years.
"SilTerra will soon reap the benefits of our solid transformation plan. Given SilTerra's inherent capabilities and with the support of CGP Fund, we are certain of SilTerra's prospects," he said.
"We look forward to capitalise on the positive prospects throughout the semiconductor value chain and create a significant impact while positioning Malaysia as a globally competitive player in this space," he added.
On the recent contract win worth RM1.6 billion from ChipOne Technology (Beijing) Co Ltd for wafer supply, Syed Zainal said the contract would allow SilTerra to have a guaranteed wafer base load.
"This will also ensure SilTerra has ideal factory utilisation and operational efficiency while leveraging on the company's robust process technology, foundry design kits and intellectual property to produce and deliver optimum energy-efficient products.
"We are confident that this new contract will contribute positively to SilTerra's earnings and lead the way forward for SilTerra's expansion into the global semiconductor space," he said.