Elec and Eltek’s (E&E) 2Q’13 profit fell 65% yoy to US$4.2mln, dragging 1H’13 profit down 53% to US$8.2mln.
As 1H’13 profit of US$8.2mln only accounts for 20% of full year consensus estimate of U$42mln, the performance was below expectations and requires downward revision in consensus estimates.
The lower than expected performance reflects weak demand from their key customers, downward pressure on average selling prices due to intense competitive pressures as well as higher operating costs in China.
In addition, the new Yangzhou plant faced teething problems in the second phase of production capacity expansion and did not contribute as much to sales output as previously expected but raised operating costs as labor, depreciation and other operating costs kicked in.
Rising minimum wages and appreciation of the Rmb also negatively impacted profit margins.
Going forward, while management expects to remain profitable in 3Q13, profit margins will continue to remain under pressure due to continued intense competitive pressures, weak demand conditions, continued rising operating costs as well as continued teething problems at their new Yangzhou production facility.
Due to the lower interim profit, interim dividend was also reduced by 22% to 7 US cents per share. Last year’s final dividend was reduced by 8% to 11 US cents per share as well due to the reduced profit.
If they can maintain last year’s final dividend of 11 US cents this year, the dividend yield is an attractive 8.3%.
Net gearing is a reasonable 14% while gross gearing is 23%.
Publish date: 01/08/13