Towards Financial Freedom
Elec & Eltek - Poor Yangzhou Plant Execution
ELEC's 3Q13 results came in below expectations, with USD4.2m in earnings (-51.3% y-o-y) on the back of USD135.8m in revenue (-1.2% yo-y). This was due to the poor execution of its Yangzhou, China, plant. Nonetheless, we believe that the worst is now over and we continue to like the stock for its generous dividends. Maintain BUY, albeit with a lower USD2.27 TP (from USD2.50), based on a 14.2x blended FY14F P/E.
- Mixed demand results in flat sales. During the quarter under review, ELEC experienced strong demand from its mobile devices and automotive customers, with y-o-y segmental sales increasing 15.7% and 9.7% respectively. This has offset the ongoing weakening demand from its computer and computer peripheral, and consumer electronic customers, with sales declining by 11.4% and 5.5% y-o-y respectively. Nonetheless, ELEC's topline came in below expectations, given that 3Q is historically its strongest quarter, as customers traditionally ramp up their production capacity for the holiday season during this period.
- Disappointing margins linger. Once again, ELEC failed in managing its newly set up Yangzhou, China, plant - missing the facility's targeted production capacity. The group attributed this to what it claimed was the incompetence of the previous management group, which allowed the plant to incur operating losses and slowed down the rationalisation process. This, ELEC said, resulted in a disappointing 3Q13 gross margin of 10.5% (-3.4 ppts y-o-y), similar to that posted in the previous quarter.
- Look forward to FY14. Although the Yangzhou plant is now in better hands, with operational efficiency improving, with only one quarter remaining in FY13, chances of a turnaround are probably over. The management, however, remains optimistic about the company's FY14 outlook, with ELEC aiming to obtain a higher market share in the highdensity interconnect (HDI) and automotive segments. At the same time, it will continue with its plant rationalisation process in order to improve margins. Thus, we believe that the worst is now behind ELEC and that FY14 looks set to be a good year ahead.
Financial Exhibits
SWOT Analysis
Company Profile
Elec and Eltek (ELEC) is one of the largest manufacturers of printed circuit boards (PCB) in the world.
Elec and Eltek (ELEC) is one of the largest manufacturers of printed circuit boards (PCB) in the world.
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Source: OSK
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