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Why Has Elec & Eltek International Company Ltd Suffered A 35% Fall In Profit?

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Elec & Eltek International Company Ltd (SGX: E16) is a dual-listed company (in both Hong Kong and Singapore) that operates in the printed circuit board industry. The company currently has 5 production sites in Hong Kong, China, and Thailand.

Things are not looking great for the company after the announcement of its latest half-yearly results yesterday.

For the six months ended 30 June 2014, Elec & Eltek saw a 1.9% year-on-year increase in revenue to US$251.5 million. There’s no official segmental reporting given by the company, but it did mention that it has businesses in the automotive, communication, mobile phone, and computer related segments. During the first half of 2014, Elec & Eltek saw most of its segments – except for the computer related business – turn in higher revenue.

However, due to a huge increase in its cost of goods sold, the company’s gross profit margin got dragged down from 10.3% a year ago to 8.3%, resulting in a 22% drop in gross profit. Although Elec & Eltek had been able to cut down on other expenses (the 22.8% decline in administrative expenses was a bright spot), it was not enough to save the company’s bottom-line. Elec & Eltek ended the first half of 2014 with a 35.1% fall in profit to US$5.3 million.

The company’s net gearing ratio stood at 19.6% as of 30 June 2014 compared to 14.7% a year ago. Although the company’s balance sheet has deteriorated, the company’s still in a relatively strong financial position.

In the company’s comments on its prospects, it seems that management’s fully aware of the challenges lying ahead as they have already started restructuring the company. Besides a reshuffle of the Board, the company is closing down its Hong Kong plant and improving the utilization rate at its plants in China. The company sees the smart phone and automotive market as its main growth engines. As Chinese smart phone and automotive manufacturers expand globally, Elec & Eltek aims to capture some of that growth. Let’s hope the company is able to execute its plan effectively.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn't own any shares of companies mention above.