Chairman Message
Dear Shareholders,
On behalf of the Board of Directors (the “Board”) of InnoTek Limited (“InnoTek” or the “Group”), I present to you our Annual Report for the financial year ended 31 December 2023 (“FY’23”).
Even as China’s manufacturing industry recovers from the pandemic, new challenges have emerged. Domestic economic growth has been slower than expected while consumer sentiment remains subdued, leading to softer demand. This is compounded by a growing number of foreign companies adopting a “China + 1” manufacturing strategy in response to prolonged China-US trade tensions. This has led to an outflow of manufacturing activities, mostly to Southeast Asia. At the same time, operating costs continue to rise.
Hence, it is with no small measure of pride that I report that our net profit for the year nearly doubled to S$4.4 million, on a higher revenue of S$205.6 million. This marks our eighth consecutive year of profitability, a remarkable record when we look back at the challenging period during and immediately after the pandemic.
The improved performance was the result of decisive and proactive measures to move up the value chain and extend our reach and capabilities. Under the leadership of our CEO Mr. Lou Yiliang, we ventured beyond our traditional domain of automobiles (“Auto”), office automation (“OA”) and TV displays. We have penetrated emerging industries , such as graphics processing units (“GPU”) servers used for Artificial Intelligence (“AI”), gaming machines, medical equipment, and financial equipment.
Notably, the recent rise of generative AI unleashed strong demand for advanced GPU servers. Indeed, many hardware players are racing to introduce equipment and products to support this trend sweeping across the IT landscape. Our growth in sales from this sector has come from a relatively insignificant base a year ago.
That said, the ability to secure orders from these new sectors underscores the ability of InnoTek to win market acceptance for new product lines that require high precision, strict pre-qualification and the ability to handle potential product ramp-ups.
Meanwhile, we continue to diversify our manufacturing footprint. In February 2023, we invested in new manufacturing capabilities for our 70%-held subsidiary in Bac Giang, Vietnam, further strengthening our presence in the ASEAN region. To recap, apart from the additional facilities in Bac Ninh, Vietnam and Rayong, Thailand, we now have five manufacturing facilities spread across China – in Wuhan, Suzhou, Chuzhou and Dongguan. Our expanded geographical footprint not only mitigates the risks associated with the China-US trade tensions but allows us to benefit from the competitive advantages – and new market opportunities – within ASEAN.
The management team has also been working relentlessly to improve the production process and enhance our quality and efficiency controls. This has led to lower scrap and rework rates, thereby improving our margins.
Let me now review our financial performance.
FY'23 PerformanceFor FY’23, revenue rose 10.1% to S$205.6 million from S$186.8 million in FY’22. This growth was driven by higher turnover from the Auto segment and increased revenue contributions from projects secured in new field segments.
For the Auto segment, we recorded higher sales for tooling and Electric Vehicle (“EV”) battery components, as demand for auto products grew amid increasing adoption of EVs in China and a recovery in overseas markets.
The increase was partially mitigated by softer sales in the OA segment, as customers accelerated their shift from China to Southeast Asia. We recorded lower revenue in the TV/Display segment, as customers delayed orders to digest their inventory holdings which had expanded due to overstocking during the pandemic in anticipation of supply chain disruptions.
Gross profit increased 21.2% to S$33.0 million in FY’23 from S$27.2 million in FY’22, outpacing revenue growth, mainly due to lower scrap and rework rates, and reduced costs of raw materials as prices have come down from their pandemic highs. Consequently, FY’23 gross profit improved to 16.0% from 14.6% in FY’22.
InnoTek recorded net profit of S$4.4 million, a 93.3% increase from S$2.3 million in FY’22. The increase was partially offset by start-up costs from our 70%-held subsidiary in Vietnam, higher income tax expenses, and a S$1.4 million impairment loss on non-current assets within a subsidiary in China. Excluding the impairment, net profit would have been S$5.8 million.
On the outlook, InnoTek remains optimistic that our performance will continue to improve on the back of a recovering economy, even as we expand our customer base and product portfolio. Our strategic focus will be on maintaining a healthy pipeline of projects in emerging industries, while further investing in automation for our facilities to enhance operational efficiency. The Group will also continue its cost control initiatives in an increasingly competitive landscape.
DividendThe Board of Directors has proposed a first and final cash dividend of 2.0 Singapore cents per ordinary share, subject to approval at the upcoming Annual General Meeting (“AGM”). We have maintained steady dividends throughout the pandemic, and remain committed to adding long-term value to our shareholders.
Appreciation
In closing, I would like to express my gratitude to our customers, suppliers and business associates for their contributions throughout the year. I would also like to thank our staff for their unwavering support and hard work. A special mention goes out to our CEO Mr. Lou Yiliang for leading the Group into new business segments while continuing to navigate the challenges of the operating landscape.
Our Independent Directors Mr. Steven Chong and Mr. Sunny Wong will not be seeking reappointment at our upcoming AGM on 26 April 2024, in accordance with the Singapore Exchange Regulation’s (“SGX RegCo”) nine-year limit for independent directors. I express my sincere appreciation to Mr. Steven Chong and Mr. Sunny Wong for their counsel and contributions throughout these years, and wish them the best in their future endeavours.
On behalf of the Board, I would also like to thank you, our valued shareholders, for your continued confidence. Your faith in InnoTek Limited motivates us to pursue even greater heights and further add value.
Mr. Neal Manilal Chandaria
Chairman, Non-Executive and
Non-Independent Director
