Wah Seong Corporation Berhad Annual Report 2020

30 WAH SEONG CORPORATION BERHAD Risks related to the COVID-19 outbreak are closely monitored at each business operation. The Group also recognises risk related to supply chain disruption. To date, RE has implemented several risk mitigation strategies that focus on alternative sourcing strategies to minimise this impact. Another risk identified in its servicing business is its logistics, especially during lockdowns, limiting teams’ movement to service their customers. Focusing on setting up workshops closer to the plantations will significantly reduce the impact of this risk in the future. As global economy is expected to recover in 2021 and beyond, rising logistic and material costs will be a key challenge. At the same time currency volatility is to be expected. Constant monitoring and actions are taken to minimise these exposure risks in the overall business operations. MANAGEMENT DISCUSSION AND ANALYSIS Discussion on expectations of future results For RE’s industrial engineering business, 2021 outlook appears positive as more gas development projects take off and activities pick up in the general manufacturing sector, albeit a slower start in 2021 due to the resurgence of new COVID-19 cases and fresh lockdown. With the vaccine immunisation plan rolling out and the expected global economic recovery in 2021, RE projects the market to recover during the year, although at levels lower than pre-pandemic period. According to S&P Global Platts analysis, palm oil’s demand and price is expected to increase due to lower supply and production in the first quarter of 2021. The Indonesian government’s stance on B30 biodiesel also helped support the price and the higher prices of competing vegetable oils. The Group anticipates that there will be strong demand for its products and services coming from the Indonesian market for RE’s agro-based business in 2021. Its recent operational expansion in Indonesia would position the Group’s agro-business favorably. In 2021, the Group expects to strengthen further and grow its position in Indonesia and other ASEAN destinations. Outlook for agro- based business remains positive in 2021 and beyond due to rising palm oil prices which is likely to stimulate a recovery in investment and capital expenditure in the plantation sector. INDUSTRIAL TRADING & SERVICES (“ITS”) Discussion of strategies, operational capabilities to achieve the desired business objectives and results ITS saw a significant drop in its trading sales volume as the Malaysian construction industry came to a complete halt due to the COVID-19 containment measures. While the sector was one of the earlier industries that were approved to operate, shortages of foreign workers and a series of COVID-19 cases at construction sites across the country resulted in significant intermittent disruptions at job sites. Nevertheless, despite the extreme challenges, all ITS business units quickly rebounded when the lockdown was relaxed to resume deliveries of goods and services to the market. ITS remained resilient during the year due to its earlier streamlining exercise, strategically taken before 2020 to operate on a lighter cost structure. During the year, its construction equipment and power generation business also managed to reduce its inventory level by 30% during the second half of 2020. In August, ITS successfully sold 70% of its stake in the Spirolite HDPE pipe business to Lesso Malaysia Holdings Sdn. Bhd., a China Lesso Group subsidiary (“Lesso”) for a total sales consideration of RM30.37 million. Lesso is one of the world’s market leaders in PVC and HDPE pipe manufacturing with advanced technologies, capabilities and access to global markets. This strategic disposal will allow ITS to collaborate with Lesso to accelerate Spirolite’s business growth in Malaysia and the ASEAN region.