InnoTek Limited
Corporate Information
Financial Information
Stock Information
Newsroom
Information Request


Email This Print This Financials

Third Quarter Financial Statement And Dividend Announcement 2018

Financials Archive

Get Adobe Reader Note: Files are in Adobe (PDF) format.
Please download the free Adobe Acrobat Reader to view these documents.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
For the Third Quarter ended 30 September 2018

Balance Sheet

Review of Performance

Review for the Quarter ended 30 September 2018 (Q3'18)

Turnover (Q3'18 vs Q3'17)

The Group's revenue for the July-to-September 2018 quarter (“Q3'18”) increased by S$6.2 million or 10.9% to S$62.5 million from S$56.3 million in Q3'17 due mainly to: .

  1. Revenue from the Precision Components segment has increased compared to Q3'17. Although the transfer of Chinese production from major Japanese OA customers to Southeast Asian countries is still in progress, it is stabilizing. This quarter's OA sales showed slight increase over Q3'17 after intensive effort put in by the Dongguan and Suzhou factories to obtain orders for new products of our major customers. Our Dongguan factory continue to support the Thailand factory shipment to a major OA customer in Thailand. In addition, despite current programmes nearing end-of-life, sales for automotive products were stable due mainly to some newly secured automotive projects have begun production in Q3'18 while mass production from other newly secured automotive programmes will only start next year. Despite the reduction in demand for TV, Q3'18 was the peak season for TV back panel production.

  2. Higher revenue from the Precision Machining segment on the back of increased sales for heatsinks and car display panels. The demand for TV bezels continues for large, HD TVs. The continual shipment for the one-time order in Q2'18 for commercial display product also contributed to the increase in revenue from the Precision Machining segment.

  3. Q3'18 tooling sales increased slightly compared to Q3'17 due mainly to sales to new mold orders from Auto and OA customers.
Net Profit (Q3'18 vs Q3'17)

The Group net profit was S$7.1 million, an increase of S$3.1 million compared to S$4.0 million profit in Q3'17 due mainly to:

  1. Mansfield Group (“MSF”) posted a profit of S$7.0 million in Q3'18, S$2.9 million higher than the profit of S$4.1 million in Q3'17 due mainly to:
    1. MSF's gross profit (“GP”) margin increased to 26.6% in Q3'18 from 21.6% in Q3'17 due mainly to :
      1. Higher sales from the Precision Machining business
      2. Introduction of manufacturing automation for the stamping business resulting in headcount reduction and improve production efficiency
      3. Offset by

      1. Start-up costs from newly incorporated subsidiaries Mansfield Wei Hai and Mansfield Thailand.
      2. Higher salary and wages due mainly to increase in minimum wages, higher headcount for Mansfield Thailand and Mansfield Wei Hai and bonus provision.

    2. Higher exchange gain in Q3'18 mainly due to the strengthening of HK$ vs RMB coming from HK$ intercompany receivable and CNY payable by HK subsidiaries.

    3. Higher gain on disposal of fixed assets in Q3'18

    4. Offset by higher G&A expenses mainly salary and wages from newly set-ups, Mansfield Weihai and Mansfield Thailand, bonus provision

    5. Provision for Mansfield Weihai withdrawal plan expense

  2. InnoTek's profit in Q3'18 was S$0.1 million favorable by S$0.2 million compared to a loss of S$0.1 million in Q3'17 due mainly to:

    1. Lower salary and wages from one fewer staff member and no share option expense in Q3'18 as the share option granted to CEO had been fully vested by Q1'18 and
    2. Lower office rental for the new premise in Q2'18
    3. Exchange gain from the strengthening of HK$ vs S$ for interest receivable from loan to a subsidiary
    4. Net fair value gain from investment portfolio in Q3'18 compared to net fair value loss in Q3'17

Review for 9 months ended 30 September 2018 (9M'18)

Turnover (9M'18 vs 9M'17)

The Group's revenue for the January-to-September 2018 period (“9M'18”) increased by S$6.0 million or 3.8% to S$162.5 million from S$156.5 million in 9M'17. However in terms of HK$, the Group's revenue increased HK$70.7 million or 8.0% from HK$878.3 million to HK$949.0 million. This is due to the weakening of the HK$/S$ in 9M'18 at 5.84 compared to 5.61 in 9M'17.

In term of HK$, increased revenue was mainly due to:

  1. Higher revenue from the Precision Components segment, due mainly to increased sales of automotive products, automation (OA) and consumer products offset by lower demand for TV back panels. OA sales is stabilizing as a result of the Group effort to respond and adapt to customers' tightened demand for quality and delivery time imposed for Chinese-based suppliers. The TV back panels sale has declined due to fierce competition in China. Sales for automotive products were higher due to commencement of mass production for some newly secured automotive programmes.

  2. Higher revenue from the Precision Machining segment on the back of increased sales for heatsinks and car display panels. The demand for TV bezels continues for large, high definition (HD) TVs. Automotive car display panel was also higher in 9M'18 compared to 9M'17. A one-time sale order in Q2'18 for commercial display product which production continued into 9M'18 also contributed to the increase in revenue from the Precision Machining segment. All these made up for the lower demand of TV bezel under 55 inch resulting from transition to plastic frames.

  3. Increased tooling sales due mainly to sales to 2 new customers and new mold orders from OA and Auto customers. Efforts put into clearing long-outstanding work-in-progress also resulted in higher sales.

Net Profit (9M'18 vs 9M'17)

The Group recorded a profit of S$13.0 million for 9M'18, an increase of S$5.9 million from the profit of S$7.1 million in 9M'18, due mainly to:

  1. Mansfield Group (“MSF”) profit was S$13.6 million in 9M'18, S$5.9 million higher than the profit of S$7.7 million in 9M'17 due mainly to:
    1. MSF's gross profit (“GP”) margin increased to 21.3% in 9M'18 from 18.9% in 9M'17 due mainly to:
      1. Higher sales from the Precision Machining business
      2. Introduction of manufacturing automation for the stamping business resulting in headcount reduction and improve production efficiency
      3. Offset by

      1. Start-up costs from newly incorporated subsidiaries Mansfield Wei Hai and Mansfield Thailand
      2. Higher labour costs incurred by certain entities due to increase in minimum wage and the employment of higher skilled workers to prepare for future mass production with newly installed robotic arms.

    2. Reversal of 2017 tax provision amounting to S$2.1 million (RMB9.9 million) following the award of a certificate from a combination of various mainland Chinese government agencies in Guangdong in May 2018 confirming high technology tax concession of 15% for 3 years starting 2017. Tax provision was made at 25% in 2017.

    3. Lower exchange loss mainly due to the strengthening of HK$ vs RMB coming from HK$ intercompany receivable and CNY payable by HK subsidiaries.

    4. Higher gain in disposal of fixed assets in 9M'18

    5. Offset by higher G&A expenses mainly salary and wages from Mansfield Weihai and Mansfield Thailand, bonus provision and provisions in Q3'18 for Mansfield Weihai withdrawal plan expense.

  2. InnoTek's loss in 9M'18 was S$0.7 million, S$0.1 million higher than the loss of S$0.6 million in 9M'17 due mainly to:
    1. Lower net investment portfolio gain in 9M'18 compared to 9M'17 as equity and bonds prices were affected by trade war between China and US in 1H'18.
    2. Offset by

    1. Exchange gain of S$0.1 million in 9M'18, favorable by S$0.3 million compared to exchange loss of S$0.2 million in 9M'17
    2. Lower salary and wages due to one fewer staff member and no share option expense from Q2'18 onward as the share option granted to CEO had been fully vested by Q1'18 and
    3. Lower office rental for the new premise in 1 April 2018 to 30 September 2018.
Commentary

The Sino-U.S. trade war has impacted the world as well as China's domestic economy. Though the Chinese government has adopted an active policy of expanding domestic market, the global economy appears to be on a downward trend, at least in the short term. Even though the U.S. is not a major export market for the Group, the Group will remain cautious and keep a lookout for any potential impact on its business to which it will react accordingly and promptly. In addition, the Group's operations continue to face challenges such as unstable raw material prices, rising labour costs and intense supply-side competition.

The Group's newly secured automotive projects have begun mass production; those that have yet to do so are mostly scheduled to commence in the remaining period of 2H'18 or in FY'19. However, some of the Group's older projects gradually entered into end-of-life during the quarter and slowed down production as a result. Nevertheless, while the overall growth rate of the automotive segment will slow down in the coming half year, the trend is towards stable growth. In addition to basic interior components, it is producing functional and safety parts to expand its suite of offerings. The Group remains committed to developing its automotive business and expects steady growth in this business segment for the foreseeable future.

Although high-definition (“HD”) TVs under 55 inches have increasingly transitioned to plastic frames, and total bezel production has been reduced accordingly, there is still demand for larger HDTV bezels. The Group will adjust the sales structure of TV bezel according to customer demand. Sales of heat sinks will also contribute to steady growth for the precision machining business. The Group will support growth in this segment by developing new technology for larger HDTV frames, as well as introducing manufacturing automation and other measures to streamline production efficiency and boost product quality.

The Group's revenue from office automation (“OA”) has remained steady since 1H'18 despite Japanese customers' ongoing transfer of production from China to Southeast Asia. This reflects the Group's ability to respond and adapt to customers' changing demands.to tighten their requirements in terms of quality and delivery time for China-based suppliers and now work mainly with a centralized selection of elite suppliers. The Group will continue to grow its OA market share by shifting from single-component supply to assembly works, and expects its Thailand factory to become an integral part of this supply chain going forward.

The Group has been developing its Mansfield units in Rayong, Thailand and Weihai, China. Mansfield Thailand officially opened in June 2018 and has already begun local shipments with support from the Group's Dongguan plant. It aims to start own production in December 2018. Although Mansfield Weihai has also secured important customers and commenced local production, it is now facing serious challenges due to intense price competition and adjustments of certain important customers' supply chain management. These factors, which have affected the local supply-demand equation in Weihai, have led management to decide Mansfield Weihai will gradually reduce its production and withdraw from Weihai in the near future.

The Group remains cautious about its prospects and will monitor global economic developments for any impact on the business. By continuing to improve manufacturing processes and implementing employee incentives, the Group aims to streamline labour structure and raise productivity. Going forward, the Group will continue to improve its competitiveness and develop cutting-edge technology to maintain and strengthen its relationships with customers, so as to form a strong foundation for future growth.