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Hi-P posts surprise Q1 earnings growth on lower forex costs
MAINBOARD-LISTED contract manufacturer Hi-P International's gross profit took a hit from pricing pressures and product mix, according to first-quarter results released on Thursday.
Gross profit came in 4.3 per cent lower for the three months to March 31, which was attributed to both price pressures and a turn to lower-margin products compared with the same period the year prior.
Still, Hi-P clocked growth on a sharp drop in forex-related expenses, with net profit picking up 5.8 per cent year-on-year to S$10.7 million. Meanwhile, revenue increased by 2 per cent to S$286.8 million, which the company said was "despite challenging market conditions".
The steady earnings showing bucked Hi-P's earlier forecast for lower first-quarter net profit, with the board saying in Apr 16 guidance that the difference "is mainly due to additional cost savings".
Hi-P has since noted that profits were lifted by a 70.9 per cent drop in "other expenses", which fell from S$11.3 million to S$3.3 million on lower currency net loss and fair value on hedging contracts.
Earnings per share rose to 1.33 Singapore cents from 1.25 Singapore cents before.
No dividend was recommended for the quarter, unchanged from the year prior, which the group said was "to conserve cash for business growth".
Chief executive and chairman Yao Hsiao Tung said: "Seasonally, our loading is generally lower for the first half of the year. Business competition has intensified and impacted our margin."
He also said that although the market remains challenging, the company is working on its turnaround plans.
"To this end, we have expanded our sales force in the United States and Europe and working on strengthening our sales force in Asia," said Mr Yao.
He added that the group would press on with its corporate strategies, such as growing its manufacturing footprint outside China - in markets such as Thailand - and exploring potential mergers and acquisitions.
These moves, he said, could reap opportunities from the disruption caused by the trade war between the United States and China. Hi-P has 12 plants worldwide, including five cities in China.
Hi-P has guided for lower revenue but flattish earnings in the second quarter, and a full-year performance largely unchanged from the previous year's.
The stock endured a sell-off in April, on a downgrade to "Sell" by Maybank Kim Eng analyst Lai Gene Lih. Mr Lai had said that Hi-P was overvalued and would have to turn in compound annual earnings growth of 20 per cent to 23 per cent from 2018 to 2021 to justify its share price of S$1.68 at the time.
Hi-P shed S$0.03 or 2.06 per cent to S$1.43 on Thursday before the results were announced.