Manufacturer Hi-P reports 2Q18 net profit fell 18.7 percent as margins narrow

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Contract manufacturer Hi-P reported on Wednesday its second quarter net profit fell 18.7 percent on-year to S$12.28 million, despite an increase in revenue, as margins narrowed on more competitive pricing and a change in the product mix.

Revenue for the quarter rose 8.0 percent on-year to S$302 million, but the net profit margin fell to 4.1 percent from 5.4 percent in the year-earlier quarter, it said in a filing to SGX after the market close on Wednesday.

The gross profit margin declined to 9.8 percent in the quarter, from 12.2 percent in the year-earlier period, it said.

Other income increased by S$2.5 million on-year to S$4.8 million for the quarter, mainly due to higher government incentives granted to the group’s subsidiaries in China, the filing said.

Hi-P’s total selling, distribution and administrative expenses increased 12.2 percent on-year to S$19.6 million for the quarter amid higher staff costs stemming from annual salary increments and an increase in social security contributions imposed by local authorities, it said.

It also posted an income tax expense of S$3.8 million for the second quarter, for an effective tax rate of 23.5 percent, up from 15.0 percent in the year-earlier quarter, mainly on withholding tax paid on dividends declared by subsidiaries in China in the second quarter.

Cautious guidance

In its guidance, Hi-P said that it expected higher revenue but similar profit for the third quarter of 2018, compared with the year-earlier quarter. For the second half, it said it expected higher revenue and profit than in the first half. Hi-P said that it expected similar revenue and lower profit for 2018, compared with 2017.

For its outlook, Hi-P pointed to International Data Corporation (IDC) forecasts for the global smartphone market to reach 1.46 billion units shipped in 2018, down 0.2 percent from 2017, with a projected compound annual growth rate (CAGR) of 2.5 percent through 2022.

In the internet of things (IOT) segment, which Hi-P sees as a key growth avenue, the IDC forecast spending on IOT-related products to see a CAGR of 13.6 percent over the 2017-2022 forecast period, reaching US$1.2 trillion in 2022.

Hi-P’s Executive Chairman and CEO  Yao Hsiao Tung had some words of caution.

“The market sentiment towards trade war has led to a more challenging business environment and difficult business conditions. In addition, we face rising competition, especially from emerging competitors in China,” he said in the statement. “While disruptive market trends such as IOT should benefit Hi-P, this advantage has been eroded by the adverse market sentiment.”

Yao added that Hi-P was seeking new customers as well as merger and acquisition opportunities in the medical and automotive industries.
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Hi-P is a global contract manufacturer of smart phones, tablet computers and other consumer electronics.

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