Penang-born Precision Engineering Firm Continues Moving Up the Value Chain

By Lee Siu Ming

November 2021 IN THE INDUSTRY
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Photo by: Kobay Technology
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KOBAY TECHNOLOGY HAS as its core business highp-recision engineering, with peripheric tradings in property development. It was founded as Polytool Technologies in 1984 in Penang, where it was involved in precision tool dies and moulds, before the expansion of capacities and capabilities redirected its focus on machining components and surface treatment services, in support of the semiconductor, electrical and electronics (E&E), oil and gas, aerospace and medical devices industries.

Kobay has prospered alongside the state’s industrialisation efforts; today, this Bursa Malaysia-listed company has a market capitalisation of RM1.5bil, with manufacturing facilities in Perai and Bayan Lepas, Penang and in Pontian, Johor.

In 2016, as part of the company’s risk management strategies, Kobay diversified into property development, with ongoing and planned projects in Penang, Perak and Pulau Langkawi, where the building of villas and serviced apartments for Lavanya Residences Langkawi is currently the company’s pioneer investment project.

This August, Kobay also acquired 70% equity interest in Avelon Group, a pharmaceutical retail chain-based group involved in the distribution of drugs, supplements, nutrition and personal care products.

Penang Gains from Trade Decoupling but Still Faces Talent Shortage

As companies globally reassess the need to diversify their geographical footprint and process outsourcing amid persisting trade tensions between the U.S. and China, Penang-based companies have benefitted in two ways: from order diversion and the growing expenditure for semiconductor equipment spending which is expected to register a 34% growth to reach USD95bil in 2021, according to industry association SEMI1. Kobay registered revenue of RM157mil in the 2021 financial year alone, with a Compounded Annual Growth Rate (CAGR) (2016-2021) of 8.4%.

Kobay’s contribution in precision engineering forms an important ancillary asset to Penang’s semiconductor industry, specifically in expanding capabilities within the mechanical / electro-mechanical assembly to module testing and high-level assembly (HLA) service installations of sub-assembly and components, routing of cabling and wire harness, printed circuit board assembly (PCBA), functional and reliability testing up to box build level.

“Kobay has a staff strength of more than 800,” says CEO and managing director, Dato’ Seri Koay Hean Eng, “and is planning to increase hiring for more than 200 positions as the company continues its expansion into the high investment-value renewable energy (RE) business, to serve an Americanheadquartered client.” But talent shortage, in particular of experienced engineers and skilled machinists, remains an issue as long of Covid cases are still in the thousands and international borders stay closed.

Harming the industry’s growth even more are the lack of interest in technical and vocational training (TVET) education and jobs among locals, and the wooing of the existing pool of engineers by reputed MNCs despite local firms offering equally competitive salaries. But a criterion agreed upon by all employers for the onboarding of local hires is a positive working attitude. In turn, various allowances and incentives are made available for employee retention.

Developing Home-grown Companies is Fundamental to Industrialisation

In progressing beyond the 50-year mark of Penang’s industrialisation journey, companies in Penang, and to a larger extent Malaysia, have profited from “the inflows of foreign direct investments (FDI) and the presence of key industry MNCs in facilitating knowledge transfer; these are reflective of the advantages afforded by localisation and vendor development,” says Koay.

To industrialise an economy like those found in Japan, South Korea and Taiwan, it is important to have strong supporting industries. Local companies, both large ones and SMIs, are integral to the local supply chain in supplying materials and components required for the final product to enable a plug-and-play industrial ecosystem.

Kobay's plant in Bayan Lepas. Photo by: Kobay Technology

But as a one-stop hub, Malaysia is still at a disadvantage. Local industries may not be able to supply a complete range of products required for PCBAs for example, which increases the need to import and reduces local value-added contribution. For a resilient supply chain, strong government support is crucial, especially for small and medium industries in three focus areas: 1) Providing more incentives and support for research and development (R&D) activities which are costly and may not yield immediate return on investments; 2) Increasing university-industry collaborations in talent development and equipment sharing, which in the age of Industry 4.0, is also imperative in supporting local industries; and 3) Speeding up business approval applications and supplementing key infrastructure to drive more investments, re-investments and growth.

In the long run, Kobay foresees the company’s manufacturing growth to be driven by continued robust demand from the semiconductor and E&E industries, healthy growth in orders for HLA, and from the RE business segment. Kobay expects to continue leveraging its manufacturing core experience and strength to move up the value chain into more complex and high value-added products from its current low / mid-volume, high mix manufacturing that serves multiple key industries, and to diversify export products and markets.

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Lee Siu Ming

is a senior analyst at Penang Institute, and believes in the Latin phrase Audi alteram partem, loosely translated as “Listen to the other side".