This article first appeared in The Edge Malaysia Weekly on July 14, 2025 - July 20, 2025

DESPITE the potentially higher costs and competitive disadvantages resulting from the 25% tariff on Malaysian exports to the US effective Aug 1, precision engineering components manufacturer Northeast Group Bhd (KL:NE) remains confident about the resilience of its export-driven business and is banking on its strong client relationships and continuous investment in technology.

The company, which was listed on the ACE Market of Bursa Malaysia in mid-October last year, exports nearly 75% of its products, 32% of which are destined for the US market.

Northeast executive director Chong Ewe Hean says that to mitigate the impact of the tariff, the group has been proactively engaging with its clients in anticipation of the hike, which has weighed on market sentiment since April.

“I have just returned from the US. This was my second trip in the past two months to engage directly with our clients regarding the impending tariff. Many of our customers have reassured us that it is business as usual and that they remain committed to working with us,” he tells The Edge in an interview.

Chong expects customer demand to remain steady, pointing to a continued rise in purchase orders, particularly from clients in the photonics and telecommunications sectors. “Nevertheless, we are exploring the possibility of establishing a company in the US to help mitigate the impact of the tariff,” he says.

Despite the external challenges, Chong remains confident that Northeast’s planned expansion in Seberang Perai Tengah, Penang, will progress as scheduled, with completion targeted for 2027. The group currently operates three factories in Juru and Bukit Minyak, also in Penang.

Northeast, which has been around for 20 years, specialises in manufacturing precision engineering components used in industries such as telecommunications, photonics, electrical and electronics, semiconductors and optoelectronics. It also offers surface finishing, sheet metal fabrication and mechanical sub-assembly services.

The group raised a total of RM110.4 million from its initial public offering last year. The exercise comprised a public issue of 168.99 million new shares, which raised RM84.49 million, and an offer for sale of 51.8 million existing shares, which generated RM25.9 million for the selling shareholders. Nearly half of the proceeds from the public issue was allocated to the construction of a new manufacturing facility.

“The new plant is expected to boost our current production capacity by 50%. We want to be ready by 2028 to support emerging technologies such as the sixth-generation (6G) wireless network, cooling systems for data centres and expansion into new markets,” says Chong.

“To stay ahead, we must anticipate future demand by closely monitoring trends and technological advancements. This means preparing our machinery, processes and materials, and starting to train our workforce early. That’s how we ensure we remain relevant and competitive in the market.”

He adds that Northeast’s existing plants are operating at a high utilisation rate of 95%.

To support future growth and diversification, the group is in the midst of transforming its business model from being a precision components manufacturer to a provider of integrated engineering solutions.

“We are evolving from manufacturing individual components to assembling them into submodular systems,” Chong explains, adding that this would allow the group to move up the value chain and offer more comprehensive solutions to its clients.

While Northeast does not have long-term contracts with its customers — relying instead on confirmed purchase orders — he highlights that the group currently has an order book of RM35 million, which is sufficient to sustain its operations for the next three months. Its order replenishment rate currently stands at about RM10 million a month.

“Our order book has improved by 20% from last year, largely due to a more stable business environment following the US elections. There was uncertainty earlier about which party would come to power, but with that now resolved, economic growth has returned to focus and the outlook is more positive,” he says.

Chong, 52, holds a direct stake of 3.5% in Northeast and an indirect stake of 53.7% through Mountain Range Sdn Bhd, a private vehicle he co-owns with Northeast managing director Ng Chay Chin.

For the second quarter ended March 31 (2QFY2025), Northeast posted a net profit of RM6.06 million on revenue of RM27.45 million.

Its share price reached a peak of 74 sen on Nov 7 last year before retreating to close at 51 sen last Wednesday — just 2% above its IPO price of 50 sen per share. With a market capitalisation of RM377.4 million, the shares are currently trading at a historical price-earnings ratio (PER) of 27.46 times, which is lower than those of its listed peers in the precision engineering industry.

Bloomberg data shows that UWC Bhd (KL:UWC) has a historical PER of 86.9 times, while CPE Technology Bhd ­(KL:CPETECH), SFP Tech Holdings Bhd (KL:SFPTECH) and Coraza Integrated Technology Bhd (KL:CORAZA) have PERs of 25.44 times, 47.93 times and 28.53 times respectively. YBS International Bhd (KL:YBS) and Wong Engineering Corp Bhd (KL:WONG), however, are currently loss-making.

Chong says Northeast aims to transfer its listing to the Main Market in the next two years. This goal is supported by the ongoing technology adoption, which is driving the demand for artificial intelligence (AI), data centres and faster telecommunications services.

He remains optimistic about the resilience of Northeast’s precision engineering business, underpinned by the group’s specialised expertise in high-accuracy components and growing interest from advanced sectors such as photonics and telecommunications.

“I believe it’s an achievable goal. We’re actively enhancing our capabilities to adapt to evolving technologies,” says Chong.

“With AI gaining momentum, data flow is increasing rapidly. As a result, we’re seeing rising demand for components used in telecommunications infrastructure such as data centres, towers and substations. These are key areas we’re focusing on.”

According to independent market research firm Smith Zander, Malaysia’s precision engineering industry grew 12.64% to RM4.01 billion in 2023. From 2020 to 2022, it grew at a compound annual growth rate of 28.68%, despite the challenges posed by the Covid-19 pandemic. 

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