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Hana
Microelectronics
HANA <Bt72>
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Recommendation
New : BUY
Previous :
BUY
Fair Value :
Bt100
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Earnings
(minus AIT) exceed expectations
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HANA's normalised profit for
FY02 was Bt1.61bn, 12% above our forecast. Excluding losses
of Bt1.89bn caused by the write-off of its investment in
43%-owned AIT, HANA posted better-than-expected normalised
earnings of Bt491mn in 4Q02. HANA's decision to bite the
bullet on its loss-making affiliate is very positive for
earnings prospects as there will be no more losses from AIT
in the future.
A strong recovery at HANA's
IC plant in Ayutthaya helped widen operating margins from
10.3% in 4Q01 to 21.9%. Gross margins rose from 19.9% to
30.6% during the same period.
HANA is trading on a 2003 PER
and EV/EBITDA of 7.0x and 4.2x respectively. These are well
below its historical ranges of 8-10x and 6-8x. We expect
HANA to pay a dividend of Bt3 a share for its 2002
operations, representing a yield of 4%.
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Table
1: HANA's earnings forecasts |
|
Year
to Dec |
2001 |
2002 |
2003F |
2004F |
2005F |
|
Sales (Btmn) |
6,781 |
8,060 |
8,835 |
9,220 |
10,500 |
|
Net
profits (Bt) |
452 |
-866 |
1,589 |
1,901 |
2,329 |
|
EPS (Bt) |
2.94 |
-5.62 |
10.31 |
12.33 |
15.11 |
|
Growth (%) |
-77% |
-291% |
284% |
20% |
23% |
|
Cash/shr(Bt) |
9.9 |
13 |
14.3 |
16.6 |
19.6 |
|
PER (X) |
24.5 |
- |
7 |
5.8 |
4.8 |
|
BPS (Bt) |
46.1 |
36.6 |
36.2 |
42.8 |
50.8 |
|
EV/EBITDA
(x) |
6.7 |
4.2 |
3.6 |
2.7 |
1.8 |
|
Dividend
Yield % |
3% |
4% |
6% |
7% |
8% |
Normalised
earnings better than expected
Excluding losses of Bt1.89bn
caused by the write-off of its investment in 43%-owned
Advance Interconnected Technology (AIT), HANA posted
better-than-expected normalised earnings of Bt491mn in 4Q02.
This was 25% higher than normalised profit of Bt418mn in
3Q02 and was a marked turnaround from normalised losses of
Bt66mn in 4Q01.
Stripping out AIT's loss
contribution, HANA's normalised profit for FY02 was
Bt1.486bn, up 54% yoy and 3% above our forecast. Sales grew
19% yoy to Bt8.06bn while gross margins rebounded from 20.5%
in 2001 to 25.7%. The one-off investment write-off of AIT
resulted in a full year net loss of Bt866mn. HANA's decision
to bite the bullet on its loss-making affiliate is very
positive for earnings prospects as there will be no more
losses from AIT in the future.
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Table
2: Quarterly income statement |
|
|
4Q02 |
4Q01 |
%
Chg |
3Q02 |
%
Chg |
2002 |
2001 |
%
Chg |
|
Sales |
2,141 |
1,505 |
42.2% |
2,030 |
5.5% |
8,060 |
6,781 |
18.9% |
|
COGs |
1,486 |
1,206 |
23.2% |
1,524 |
-2.5% |
5,992 |
5,391 |
11.1% |
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Gross
profits |
655 |
299 |
119.0% |
506 |
29.5% |
2,068 |
1,389 |
48.9% |
|
SG& A |
185 |
144 |
28.3% |
129 |
43.2% |
577 |
511 |
12.8% |
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Operating
profits |
470 |
155 |
203.7% |
376 |
24.9% |
1,491 |
878 |
69.9% |
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Interest
expenses |
0 |
0 |
na |
0 |
na |
0 |
0 |
na |
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Non-operating
income |
31 |
23 |
35.9% |
30 |
2.3% |
120 |
134 |
-10.9% |
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Pre-tax
income |
500 |
177 |
182.7% |
406 |
23.1% |
1,611 |
1,012 |
59.2% |
|
Extra
items |
-1,888 |
-4 |
na |
12 |
na |
-1,910 |
-3 |
na |
|
Normalized
profits |
491 |
-66 |
-32.8% |
418 |
17.6% |
-299 |
455 |
na |
|
Net
profits |
-1,397 |
-70 |
na |
283 |
na |
-866 |
452 |
na |
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EPS |
-9 |
-0.5 |
na |
1.8 |
na |
-5.6 |
2.9 |
na |
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Gross
margins (%) |
30.6 |
19.9 |
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24.9 |
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25.7 |
20.5 |
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Operating
margins (%) |
21.9 |
10.3 |
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18.5 |
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18.5 |
12.9 |
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Figure
1: HANA's profits and AIT's losses
Improvement
in operations at nearly all plants
In 4Q02, all plants, except
that of optical products in Bangkok, witnessed strong
growth. Sales at HANA's IC plant in Ayutthaya more than
doubled yoy in 4Q02 to US$14.8mn. The Ayutthaya plant has
been running above 80% utilisation since the final quarter,
driven by strong demand for wireless and small chips. HANA
aims to move all its microdisplay operations to the
Ayutthaya factory next month.
4Q02 sales at the PCBA plants
in Lamphun and China grew 34% and 56% yoy respectively. HANA
altered the product mix at the Lamphun plant, resulting in a
rise in capacity utilisation to 70% versus 60% a year ago.
Final quarter sales dipped 3% yoy at HANA's LED/OPTO in
Bangkok. The company expects a recovery in the Bangkok
plant's operations this year as its largest clients, who
account for about 40% of sales, are continuing to reduce the
number of vendors and giving higher-value orders to HANA.
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Table
3: Revenue breakdown by plants and their growth |
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4Q02 |
3Q02 |
2Q02 |
1Q02 |
4Q01 |
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Quarterly
sales |
2,141 |
2,030 |
2,035 |
1,855 |
1,505 |
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Average
US$ |
43.4 |
42 |
42.8 |
43.4 |
44.4 |
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US$ mn
Sales |
48.3 |
48.3 |
47.5 |
42.7 |
33.9 |
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Breakdown |
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PCBA-Thailand |
17.7 |
17.9 |
19 |
17.9 |
13.2 |
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PCBA-China |
7.4 |
6.8 |
7.1 |
6.4 |
4.8 |
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LED/OPTO |
7.9 |
9.7 |
9.5 |
9 |
8.1 |
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IC-Thailand |
14.8 |
12.6 |
11.4 |
8.5 |
7.1 |
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HTM (USA) |
1.5 |
1.4 |
0.5 |
0.9 |
0.7 |
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Total |
48.3 |
48.3 |
47.5 |
42.7 |
33.9 |
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yoy Growth |
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PCBA-Thailand |
34% |
8% |
3% |
0% |
-28% |
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PCBA-China |
56% |
70% |
20% |
0% |
-34% |
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LED/OPTO |
-3% |
7% |
5% |
-9% |
-43% |
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IC-Thailand |
107% |
117% |
122% |
17% |
-30% |
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HTM (USA) |
118% |
101% |
-40% |
-34% |
-34% |
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Total |
42% |
34% |
20% |
0% |
-34% |
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QoQ growth |
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PCBA-Thailand |
-1% |
-6% |
6% |
36% |
-20% |
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PCBA-China |
9% |
-5% |
11% |
35% |
20% |
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LED/OPTO |
-18% |
2% |
6% |
10% |
-10% |
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IC-Thailand |
18% |
10% |
34% |
20% |
23% |
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HTM (USA) |
2% |
205% |
-44% |
26% |
-6% |
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Total |
0% |
2% |
11% |
26% |
-6% |
Cash reserves
rise to Bt2.5bn
HANA generated Bt1.2bn free
cash flow in 2002. With rising utilisation at its IC and
PCBA plants, HANA's free cash flow should top Bt2bn this
year. If HANA has no major acquisition plan in the pipeline,
the management may consider paying a higher dividend than
our current forecast of Bt4/share in 2003.
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Table
4: Financial ratios |
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Q4/01 |
Q1/02 |
Q2/02 |
Q3/02 |
Q4/02 |
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Gearing |
- |
- |
- |
- |
- |
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Inventory
Days |
46 |
54 |
65 |
70 |
60 |
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Collection
Days |
38 |
43 |
47 |
79 |
70 |
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Payment
Days |
39 |
51 |
58 |
64 |
57 |
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Net debt
(Btmn) |
-1,540 |
-1,869 |
-1,697 |
-1,904 |
-2,508 |
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Working
capital (Btmn) |
815 |
843 |
1,006 |
1,697 |
1,578 |
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Income
statement |
|
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2001 |
2002 |
2003F |
2004F |
2005F |
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Sales |
6,781 |
8,060 |
8,835 |
9,220 |
10,500 |
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COGs |
5,391 |
5,992 |
6,579 |
6,633 |
7,378 |
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Gross margins |
1,389 |
2,068 |
2,257 |
2,587 |
3,122 |
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SG&A |
511 |
577 |
663 |
691 |
735 |
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Operating margins |
878 |
1,491 |
1,594 |
1,895 |
2,387 |
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Interest expenses |
0 |
0 |
0 |
0 |
0 |
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Other income |
134 |
120 |
172 |
217 |
259 |
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Pretax profits |
1,012 |
1,611 |
1,766 |
2,112 |
2,646 |
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Income taxes |
46 |
82 |
177 |
211 |
317 |
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Associate earnings |
-510 |
-484 |
- |
- |
- |
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Minority interests |
- |
- |
- |
- |
-1 |
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Extraordinary items |
-3 |
-1,910 |
- |
- |
- |
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Net income |
452 |
-866 |
1,589 |
1,901 |
2,329 |
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Balance
sheet |
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2001 |
2002 |
2003F |
2004F |
2005F |
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Cash
equivalent |
1,540 |
2,508 |
3,140 |
4,275 |
5,692 |
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Receivable |
703 |
1,537 |
1,186 |
1,212 |
1,467 |
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Inventories |
686 |
978 |
937 |
1,018 |
1,132 |
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Investment |
2,649 |
- |
- |
- |
- |
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Fixed
Assets |
2,511 |
2,352 |
2,334 |
2,270 |
1,920 |
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Total
assets |
8,341 |
7,549 |
7,759 |
8,944 |
10,379 |
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Credits |
574 |
937 |
991 |
1,036 |
1,071 |
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ST-debts |
- |
- |
0 |
0 |
0 |
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LT-debts |
- |
- |
- |
- |
- |
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Other
liability |
275 |
548 |
548 |
548 |
550 |
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Equities |
7,492 |
6,065 |
6,220 |
7,360 |
8,758 |
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Cash
flow statement |
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2001 |
2002 |
2003F |
2004F |
2005F |
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Net
Profit |
452 |
-866 |
1,589 |
1,901 |
2,329 |
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Depre./Amort. |
544 |
572 |
617 |
659 |
691 |
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Net
Working Cap. |
397 |
-763 |
446 |
-62 |
-333 |
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Unrealized
F/X |
-33 |
22 |
- |
- |
- |
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Cash
flow from operations |
1,707 |
1,569 |
2,652 |
2,497 |
2,687 |
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CAPEX |
-577 |
-358 |
-599 |
-595 |
-341 |
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Investment |
- |
- |
- |
- |
- |
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Cash
flow from investing |
-613 |
-182 |
-599 |
-595 |
-342 |
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Debt
Movement |
- |
- |
0 |
0 |
0 |
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Capital
Call |
- |
35 |
-5 |
- |
- |
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Dividend
Paid |
-385 |
-425 |
-636 |
-760 |
-932 |
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Cash
flow from financing |
-382 |
-419 |
-641 |
-760 |
-932 |
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Free
cash flow |
1,130 |
1,210 |
2,053 |
1,902 |
2,346 |
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Financial
ratios |
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2001 |
2002 |
2003F |
2004F |
2005F |
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Gross
margins |
20.5% |
25.7% |
25.5% |
28.1% |
29.7% |
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Operating
margins |
12.9% |
18.5% |
18.0% |
20.6% |
22.7% |
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Net
gearing (X) |
-0.21 |
-0.41 |
-0.5 |
-0.58 |
-0.65 |
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Interest
coverage (X) |
na |
na |
na |
na |
na |
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Inventory
Days |
46 |
60 |
52 |
56 |
56 |
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Collection
Days |
38 |
70 |
49 |
48 |
51 |
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Payment
Days |
39 |
57 |
55 |
57 |
53 |
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