Towards Financial Freedom
Elek & Eltek - Strong Quarters Ahead
Elek & Eltek (E&E)'s 1QFY13 results came in weak with PATMI of USD4.0m(-27.9% y-o-y) on the back of revenue of USD115.8m (-5.2% y-oy) as a result of the CNY impact. Moving on, we expect margins to recover along with strong order flows, providing support for a seasonally strong 2Q and 3Q. Maintain BUY with an unchanged TP of USD3.20, based on 14.2x FY13 P/E.
- CNY was the culprit. Being a typical manufacturer employing migrant workers in China, the Chinese New Year (CNY) holiday season has been a typical bugbear for the group as it gets hit with weak customer demand as well as labour shortage. This year, the situation was exacerbated due to government's urbanisation drive. As a result, for the first two months of the quarter, utilisation rate remained low at 70%, resulting in lower revenue (-5.2% y-o-y) and poor GP margins (-1.6ppts to 11.5%) as overhead costs stay high. Nonetheless, the labour shortage problem is now behind the group.
- Expecting margins to recover. Going forward, despite the escalating costs, management reiterate their confidence in pushing gross margins back to the 16% level in nine months time upon the completion of the plant rationalisation process. With more automation equipments amid lower minimum wages, the group's newly ramped up Yangzhou plant is on track to take over Guangzhou plant's low-margin PCB production with just half the labour force needed. On the other hand, ASP held firm in 1QFY13 at USD14.0/sqft as compared to USD13.8/sqft a year ago.
- On track for a strong 2Q and 3Q. Management is now optimistic about the customer demand as well as the financial performance going forward. Utilisation rate is now back to a healthy level of 85%-90%. In view of strong seasonality effect as E&E's customers build up inventory for the Christmas season, we expect the group to produce strong sets of results for the next two quarters.
Source: OSK
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