2Q18 Would Have Been a Record Quarter, If Not for Non-operating Expenses

• Serial System reported a 39% year-on-year decline in PATMI from US$3.4m in 2Q17 to US$2.04m in 2Q18, mainly due to non-operating items such as US$1.97m of currency translation loss, US$2.67m of impairment and fair value losses. Excluding these items, we derived a record adjusted profit before tax of US$11.0m for 2Q18, compared to US$7.2m in 1Q18 and US$5.9m in 2Q17.

Gross Margin Likely to Exceed Forecast Through Rest of 2018 as Productivity Measures Bear Fruit

Sales grew by 9% year-on-year to US$408.7m and gross margin recovered to a high rate of 8.2% in 2Q18. The last time Serial’s gross margin exceeded 8% on a full year basis was in 2014. Hence, the group’s efforts to streamline its consumer products business and to improve the efficiency of its electronic components distribution business have borne fruit.

In our forecasts, we project gross margin of 7.44%. We now expect group gross margin to exceed our forecast for the full year, as the margin recovery sustains over the rest of 2018.

Source: Tayrona Financial Research - 17 Aug 2018