Hi-P reports 3Q18 net profit fell 12 percent on pricing competition, lower yield on new products

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Contract manufacturer Hi-P International reported on Wednesday that its third quarter net profit fell 11.9 percent on-year to S$33.80 million amid lower revenue and as margins fell on more competitive pricing and lower yield from some new products.

Revenue for the quarter ended 30 September fell 8.3 percent on-year to S$377.12 million on fewer high component content projects, a decline in market demand due to economic uncertainty and a slower ramp-up for certain new products in the quarter, it said in a filing to SGX after the market close on Wednesday.

The gross profit margin fell 1.0 percentage point to 15.5 percent in the quarter, Hi-P said.

“Despite the margin decline, the group remains committed to increasing the automation of its processes in order to improve profitability margins while focusing on improving operational efficiency and manufacturing yield, enhancing capacity utilization and tightening cost controls,” Hi-P said.

Total selling, distribution and administrative expenses increased 14.4 percent on-year in the quarter to S$22.0 million on higher staff costs due to employee share award expenses and annual salary increments, the company said.

It declared a dividend of 1.0 Singapore cent a share, down from 2.0 Singapore cents a share in the year-ago quarter.

For the nine-month period, net profit fell 9.2 percent on-year to S$56.15 million, while revenue increased 2.7 percent on-year to S$960.22 million, Hi-P said.

Outlook

The company pointed to continued headwinds from the U.S. trade war.

“The ongoing trade war has led to a decline in demand from some customers. U.S. customers who are currently procuring supplies from China would be affected. We are exploring ways to boost our domestic China and non-U.S. business and optimize our other existing manufacturing sites based in different countries,” Yao Hsiao Tung, executive chairman and CEO, said in the statement.

“In light of the turbulent market situation, the management team is taking proactive measures to cope with the challenges, including diversifying our business into different regions and market sectors as well as undertaking mergers & acquisitions projects to extend footprint outside China,” he added.

In its outlook, Hi-P noted the continued growth in smartphone shipments globally and to the internet of things (IOT) segment, which IDC projected would see spending rise at a 13.6 percent compound annual growth rate (CAGR) over 2017-2022 to US$1.2 trillion by 2022.

Hi-P said it would focus its efforts on developing new customers and products in the targeted businesses and increasing its allocation from existing customers.

For earnings guidance, Hi-P said it expected fourth quarter revenue and profit would be lower on-year. It guided for second half of 2018 revenue and profit to be higher than in the first half of the year, but for full year revenue and profit to both be lower than in 2017.