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BROKERS’ TAKE-Huan Hsin Holdings
BROKERS’ TAKE-Huan Hsin Holdings

(2007-11-15)

Huan Hsin Holdings
Nov 14 close: S$0.51
OCBC Investment Research, Nov 14

HUAN Hsin Holdings (HHH) posted a pretty mixed bag of 3Q07 results. Although revenue rose 15.0 per cent year-on-year to S$271.1 million, earnings were just 0.9 per cent higher at S$6.4 million, mainly due to higher expenses – namely, raw material and staff costs, and higher depreciation charges. In addition, there was an unrealised forex loss of S$1.0 million due to the weakening US dollar. As a result, margins continued to ease, with gross slipping to 19.2 per cent, operating to 3.6 per cent and net to 2.3 per cent – from 21.6 per cent, 4.5 per cent and 2.7 per cent, respectively.

Nevertheless, HHH did make a significant recovery from a disappointing 2Q07 showing, with revenue up 32.9 per cent quarter-on-quarter and earnings up 220.6 per cent, going into the seasonally stronger 2H. For 9M07, revenue rose 6.6 per cent to S$672.7 million, while net profit fell 2.1 per cent to S$22.7 million, both meeting around 83.4 per cent and 79.2 per cent of our FY07 revenue and earnings estimates, respectively.

Uncertainty beyond 4Q07: Going forward, HHH expects the notebook casing demand to remain strong, as it continues to target a total shipment of 14-15 million units for the year. This translates into nearly 5.1 million units in 4Q07. We were also told that there will be a writeback of S$2 million of the VAT provision made in 2Q07. Thus we are revising up our FY07 estimates (revenue +10 per cent, earnings +8.5 per cent).

But for FY08, we foresee two risks that could spell trouble for HHH: continued margin pressures due to rising oil prices and the US sub-prime issue's impact on consumer sentiment/spending. So, for prudence sake, we have slashed our FY08 earnings and also used a lower valuation of 6.5 times (versus seven times previously). This reduces our fair value from S$0.61 to S$0.53. At this point, we also prefer to retain our “hold” rating. HOLD

《The Business Times》


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