gsg_stock discussion

Stockwatch: Spindex 1H2007 Result

Spindex 1H 2007 results announced on 13 Feb 2007:

The Group is a highly integrated solution provider of precision-machined components and assemblies for use in imaging & printing equipment, automotive systems, domestic appliances, consumer electronics and data storage equipment.

In 1H FY2007, the Group achieved healthy broad-based growth in turnover and profitability across all business sectors. Turnover increased 23% to S$33.9 million and net profit jumped 59% to S$2.1 million.

Turnover
Turnover by Business Sectors
1HFY2007 S$ ‘000 1HFY2006S$ ’000 Change (%)
Imaging & Printing (IP) 16,325 13,809 18%
Machinery & Automotive Systems(MA) 9,624 6,564 47%
Others 7,912 7,219 10%
Total 33,861 27,592 23%

Turnover from IP rose 18% to S$16.3 million with increasing sales to major customers. As a result, the higher production volume contributed to an improvement in the overall machinery utilization.

The MA sector recorded significant turnover growth of 47% to S$9.6 million. In this sector, the Group received increased orders and secured new projects from existing and new customers as a result of our market focus strategy.

Under Others sector, lower demand for telecommunication was offset by higher sales of components for tape drives, medical products and consumer-related industries. Turnover for the sector grew 10% to S$7.9 million.

Profitability
In line with higher turnover and improved operating efficiency, gross profit for 1H FY2007 grew 27% to S$6.5 million. Together with bulk purchasing from long-term suppliers to manage material costs, gross profit margin improved from 18.5% in 1H FY2006 to 19.1% in 1H FY2007.
Other operating income increased 106% due to higher scrap income and additional interest income from fixed deposits. While the weaker US dollar resulted in higher foreign exchange losses, the Group managed to moderate this negative impact with more effective cost controls and currency hedging. Included in other operating expenses was a payment of machinery import duty and value-added tax incurred by the Suzhou plant.


With reinvestment allowance enjoyed by our Malaysia plant as well as tax-free incentives for Suzhou and Hanoi plants, the Group’s effective tax rate declined from 19% to 13%. Underpinned by stronger performances in all business sectors, net profit rose 59% to S$2.1 million.

Balance Sheet & Cash Flow
With a higher level of business activities, stocks and trade debtors were correspondingly higher as at 31 December 2006. Although the Group generated positive cash flow from operations, investment in fixed assets resulted in higher bank borrowings and a reduction in fixed deposits, cash and bank balances.

Notwithstanding the lower cash balances, the Group maintained a healthy net cash position of approximately $6.3 million as at 31 Dec 2006.

Outlook
Business conditions are expected to remain challenging in the second half of FY2007. Any further weakness in the US dollar will be partially mitigated by purchases in US dollars and currency hedging. To better manage the prices of raw materials, the Group undertakes bulk purchasing from long-term suppliers.

With generally improved market demand for the Group’s services, the business sectors are expected to maintain their high level of activities. Under our major market sectors, IP and MA, the expected commencement of new projects with existing customers in early 2007 will contribute to higher sales.

All manufacturing plants in the Group will benefit from the growth in business volume and higher economies of scale. The Group will continue with its strategy of targeting key customers. Full year investment in machinery is expected to reach $5 million to support further business growth.

Barring unforeseen circumstances, the Group is cautiously optimistic of its performance for FY2007.

Key positive points:

1. High operating leverage- as the Suzhou plant just turn profitable in 2HFY2006, while the Hanoi plant is expected to breakeven in FY2007, according to its 2006 Annual Report.

2. Expected commencement of new projects with existing customers in early 2007.

3. Single-digit PE at current price of $0.22.

4. Large discount to NAV of $0.37.

5. Strong balance sheet, with net cash position of about $0.055.

6. Stock still not crowded, as few people are noticing it at the moment as evidenced by the difficulty of accumulating it at good price; however, this can turn into a negative if its fundamentals turn for the worst as it will be difficult to unload if one has built up a position of reasonable size.

posted by gsg @ 12:38 PM