Johnson Electric tips rise in sales, margins
Micro-motor maker cites falling raw material costs and higher selling prices
Johnson Electric Holdings, the world's second-largest micro-motor maker, expects revenue in this fiscal year to jump by about a third and profit margin to improve amid falling raw material costs and higher selling prices.
'Our margins will be better this year. We are cautiously optimistic about net profit this year,' chairman Patrick Wang Shui-chung said yesterday at its annual general meeting.
High steel and copper costs crimped Johnson Electric's annual profit by 33 per cent to US$94 million for the year ended March. That was the firm's smallest profit in eight years despite turnover jumping 34 per cent to US$1.53 billion.
The company's gross profit margin dived to 6.2 per cent in the previous fiscal year from 12.33 per cent a year earlier.
Mr Wang said turnover might rise to about US$2 billion this fiscal year due to contributions from two acquisitions last year, Saia-Burgess Electronics of Switzerland and Nasdaq-listed Parlex Corp.
'The whole of Johnson Electric, including Saia-Burgess, is generating good cash,' Mr Wang said. 'The reason [to justify the forecast] is our budgeting and based on what we see now. We have orders.'
Steel prices had fallen since last year, while the company had hedged against high copper prices, Mr Wang said.
Johnson Electric had passed part of the raw material costs to customers by raising prices, he added.
Steel and copper are two key raw materials for Johnson Electric, which manufactures micro-motors for cars, home appliances, power tools and other products.
Analysts, however, do not share Johnson Electric's bullish outlook as Saia-Burgess and Parlex have lower gross margins.
'We do see earnings in absolute growth, but margins will continue to decline,' said Pauline Lau, an analyst at Core Pacific-Yamaichi. 'Though you have absolute earnings growth, the stock is still trading at an expensive price-earnings ratio.'
Johnson Electric's shares trade at 27.63 times, based on yesterday's closing of $5.50. They fell 1 per cent yesterday, taking the total loss this year to 25 per cent.
'My concern is their very high debt. Johnson Electric has high financing costs, which will have a significant impact on its bottom line,' Kim Eng Securities analyst Ivan Cheung said.
Johnson Electric's net borrowing was US$466.9 million as of March 31, while its gearing ratio was 55.2 per cent, mainly due to loans to finance the US$4.5 billion acquisition of Saia-Burgess. Pre-tax revenue was 16 times interest expenses as of March 31, down from 508 times in the previous year.
Saia-Burgess pays a higher effective tax rate in its home country, than Johnson Electric's tax rate in Hong Kong, wrote Winnie Tang in a BOC International report.
'We do not see meaningful improvements in margins until the fiscal year ending March 2009, due to the higher effective tax rate and interest expenses,' she said.
