Beautified bottom line masks a harsh reality as players hang up on VTech

Last week's disappointing interim results from VTech Holdings signalled a fresh leg down for the consumer electronics maker which was once the darling of the Hong Kong stock market and business community.

The stock has already been deserted by fund managers who once flocked to buy it a couple of years ago. With its latest poor showing, analysts are wondering if it can ever attract solid interest from big institutions again.

The bottom line for the six months to September looked great - a 14-fold rise in net profit to US$50.1 million. But that was mainly due to a one-off gain from a $34 million legal settlement. Revenues actually fell 11.5 per cent on waning demand for VTech's two main products: electronic learning products and cordless phones.

To rub salt into the wounds, chairman Allan Wong Chi-yun said there might not be a pick-up in the company's second half.

In response to the negative news, shares in VTech plunged 13.46 per cent on Thursday to HK$6.75 and they lost a further 2.22 per cent to $6.60 on Friday.

The present stock price is 81.03 per cent down from the $34.80 historic high it touched in 2000 when the global technology stocks bubble was peaking out. Back then, VTech was seen as a market leader both able to produce innovative new products and enjoy the benefits of cheap manufacturing from its Chinese plants. Indeed, Mr Wong captured the SCMP/DHL Businessman of the Year award in 1998. At its peak, his firm traded on a price-earnings ratio of more than 20 times.