Future Plans
Expansion of our capacity
The electronics industry we serve is characterised by rapidly changing technology and short product life cycles. Accordingly, we need to keep abreast with the latest technological developments so as to provide technologically-advanced PCBA and OEM services that are cost-effective to our customers. We have invested RMB24.1 million, RMB45.5 million and RMB45.3 million in FY2004, FY2005 and FY2006 respectively to continuously upgrade our production equipment and expand our range of PCBA and OEM services. We intend to continue to expand our production capacity with the acquisition of new PCBA equipment and machinery to provide a wider range of PCBA and OEM services to our customers. We intend to use S$6.8 million (or approximately US$4.5 million) of net proceeds from the Invitation to purchase new plant and/or equipment which includes more advanced SMT equipment for our Group in the first half of FY2008. We intend to configure the SMT equipment acquired into three additional SMT production lines, which will generate additional production capacity of up to approximately 4,800,000 PCB component points per day (assuming a work shift of 22 hours per day). Should all new SMT equipment acquired be allocated to CHSZ, based on CHSZs maximum daily production capacity of approximately 25,650,000 PCB component points as at the Latest Practicable Date, its maximum production capacity would increase by 18.7%. We will reassess the production utilisation rate of our respective production facilities and the indicative orders from our customers at the time of placement of orders for the new SMT equipment so that we can ensure that the new SMT equipment are optimally allocated and will allow us to take on additional orders during our peak period.
Investment in Poland
We intend to expand our business through new business set-ups and tapping new markets which we
believe will complement our current business.
We intend to widen our market reach around the world, namely eastern Europe, by intensifying our sales
and marketing efforts and the provision of PCBA and OEM services in eastern Europe. To support our
efforts to gain a foothold into the eastern European market, we have identified investment opportunities
in Poland. Through our contacts with our customers (including the LG Group) and Polish government
officials, we note that prospects in Poland are optimistic with regards to, inter alia, (i) the market potential
in Poland for TFT-LCD products with emerging clustering effect as other well-known electronics
manufacturers have entered the eastern European market; (ii) the operating business environment in
Poland; (iii) Polands manufacturing infrastructure; and (iv) investment benefits in Poland.
LG Innotek (Poland) Sp. z o.o., part of the LG Group and established in Poland in 2005, has an
understanding with us that it would require our PCBA (SMT) services. Proposed investment in Poland is
estimated to be approximately US$8.3 million which will include the capital expenditure of approximately
US$6.9 million for purchase of equipment (including the US$1.4 million downpayment and first instalment
mentioned below) and estimated working capital of approximately US$1.4 million. The proposed
investment in Poland will be funded from internal resources of CHPL and by finance leases. We have
hence set aside an initial investment of approximately US$2.8 million for the downpayment and first
instalment for the purchase of SMT equipment (approximately US$1.4 million) and the working capital
(approximately US$1.4 million) of CHPL which will be funded by internal resources. When duly
incorporated, CHPL will be acquiring equipment to provide PCBA (SMT) services to electronics
manufacturers located in Poland (currently, only LG Innotek (Poland) Sp. z o.o.). We intend to configure
the SMT equipment acquired to five SMT production lines with production capacity of approximately
7,800,000 PCB component points per day (assuming a work shift of 22 hours per day) in LG Innotek
(Poland) Sp. z o.o.'s premises in Poland by the end of 2007.
Focus on providing services to be used in LCD related products
With LCD products offering increased functionality, the use of PCB in monitors, TVs, digital photo frames and instant messenger players, have also likewise increased in complexity and sophistication. We will be focusing our provision of PCBA and OEM services to be used in LCD products, such as the sourcing board and the inverter of the backlight of LCD modules. Accordingly, as we believe that the demand for PCBA in conjunction with LCD related products will increase significantly in the near future, we are leveraging on the technical expertise of our process engineering and marketing team to capitalise on this higher value market segment.
Further enhance our technical capabilities with regards to process engineering
One of our competitive strengths is our strong process engineering capability which allows us to provide complete and fully customisable in-house PCBA services to our customers within a short time frame.We believe in continuously enhancing our process engineering capability to meet the changing demands of our customers. We also believe in anticipating market trends and expanding our PCBA processes to cater to the latest range of electronics products introduced by our customers. In order to achieve this, we intend to strengthen our process engineering capability. We intend to recruit more process engineering personnel and invest in equipment and facilities to support and enhance our process engineering capabilities and further complement our in-house multi-engineering knowledge base.We believe that this will allow us to differentiate ourselves from our competitors.
Provision of services on other products for customers which are industry leaders with larger order volumes
Besides the main products which we provide services on, our PCBA and OEM services can be applied to various other electronics products of our existing and potential customers. We intend to leverage on our expertise in the provision of PCBA and OEM services used in our main product segments (such as for Computer Peripherals segment) to provide services for the products of customers with larger order volumes which may not be one of our main products which we service on. For example, in FY2006, we commenced the provision of PCBA and OEM services to the digital photo frame product. This will alleviate our reliance on our existing major customers and with a focus on larger order volumes, we will be able to optimise our economies of scale.
