E&E profit rise set to continue
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DESPITE disappointing results in 1991, Elec & Eltek (E&E), a leading manufacturer of printed circuit boards (PCBs) in Hongkong, recovered strongly in 1992, and it is expected that the rebound in earnings will continue.
E&E's PCB manufacturing accounts for 80 to 90 per cent of its total production, which in turn represents 0.5 per cent of the world market. In addition to PCBs, the company is also involved in the manufacture and sale of facsimile machines, and computer-grade switching mode power suppliers.
The company experienced difficulties in the last two years, due to the economic recession in the US, which affected the computer industry and hence the PCB industry.
Brokerage Seapower Securities forecasts the company will register 102 per cent profit growth to $72.4 million in 1992, and 23 per cent to $89.1 million in 1993.
Three main structural changes may have contributed to the company's recent achievement.
Firstly, E&E has phased out its loss-making telephone answering machines, and now concentrates on making PCBs - in particular, multi-layer PCBs, which provide a higher profit margin at approximately seven to 12 per cent.
Secondly, the Thailand branch, which has been losing money steadily, has reported a small profit since 1992.
Thirdly, the company has aggressively participated in various China projects.
Besides manufacturing, E&E has also diversified into property investment. The company is one of the eight members in the consortium which will participate in the Guangzhou Underground Mass Transit Project.
It is a large-scale property investment plan with a total development site area of 50,127 sq m, of which E&E will take 2,457 sq m for retail and office development. E&E's investment in this project will be about $300 million including land cost of about $119 million. Payment will be made in four instalments over four years.
The project is expected to be completed in 1996.
The company plans to expand its production capacity in the mainland through joint venture arrangements with existing PCB manufacturers and business associates.
E&E intends to hold a 55 per cent stake in each of the joint ventures. The acquisition cost would be about $10 million for each project.
Considering China's overheating economy, Seapower Securities warn that investors should stay cautious on the company's property development in China.
They recommend the stock as a speculative buy.