Hana Microelectronics
Core profit 9% above our estimate; generous dividend ahead
Hana Microelectronics Plc (HANA)
Net profit jump strongly
HANA reported a 4Q13 net profit of Bt614m, up by 8% QoQ and 187% YoY. The bottom-line was 11% short of our estimate (and the consensus), due to an FX loss. Stripping out extra items, core earnings would be Bt484m, up 134% YoY but down by 8% QoQ—9% above our estimate and 19% ahead of the consensus. The better core number was due largely to a lower SG&A/sales ratio than assumed. HANA announced a DPS of Bt1 (XD on March 11; payment on May, 16).
Results highlights
The top-line declined only 3% QoQ even though the quarter was low season (and jumped 19% YoY on higher income from the Ayutthaya plant). PCBA sales rose by 22% YoY and IC sales by 15% YoY. GM was 12.4%, down from 14.9% in 3Q13 but up substantially from 8.3% in 4Q12. The SG&A/sales ratio dived 220 bps YoY to 4.2% and was flat QoQ (despite softer QoQ sales). HANA booked an FX loss of Bt70m and an insurance payout of Bt199m. The firm’s balance sheet remained strong with a substantial net-cash position.
Outlook
We anticipate that sales will increase 14% (in dollar terms) in FY14, driven by rising IC revenue. Core earnings should continue to expand further on an ongoing operational recovery. Moreover, there is scope for upside from an insurance claim for Bt1bn (we expect it to be paid in 1H14), while further baht depreciation would make for a higher-than-modeled top-line in baht terms and fatter GM. For 1Q14, we project that core earnings will soften slightly QoQ but jump YoY on revenue and GM expansion.
What’s changed?
Our FY14 core profit projection and YE14 target price stand unchanged.
Recommendation
HANA trades at an FY14 PER of 10.3x, above its long-term mean of 9.6x, but still lower than the average for our Electronics coverage of 11x. We believe that the stock deserves a premium for its explosive core profit growth profile of 37% (the mean for our coverage is 25%). Furthermore, huge insurance payouts during 1H14 would boost sentiment toward the stock. Our BUY rating stands with a YE14 target price of Bt28.50, pegged to a PER of 12x (1SD above its long-term mean).
