VTech will stay on mainland despite wage cost
Labour expense in other countries is also rising, sometimes higher, says cordless phone maker
Despite rising labour costs, VTech Holdings will keep its manufacturing on the mainland for the next five years, said the Hong Kong-listed company's chairman Allan Wong Chi-yun.
The company is the world's largest manufacturer of cordless phones, with a 31 per cent global market share, according to a Kim Eng Securities report.
It is also the world's biggest maker of electronic learning products. All the company's factories are in Dongguan, Guangdong province.
"Though labour costs have increased over the last few years, China still remains the most desirable place to manufacture products," he said.
"Though there has been a 20 per cent increase per year in labour costs in China, other countries like Vietnam and Thailand have increased their labour costs too, sometimes more than China," Wong said
VTech's labour costs and manufacturing overheads will increase further from the first half, Wong predicted.
The global economic environment remains challenging because of uncertainties in the US and austerity measures that are crimping consumer demand in Europe, he said.
For the six months to September 30, North America accounted for 50.1 per cent of VTech's revenue while Europe accounted for 40.2 per cent and the Asia-Pacific region 5.8 per cent.
Wong expects his company's profit and revenue in the second half to March to be better than the first.
He is "cautiously optimistic" that VTech will achieve revenue growth for the full year.
In Europe, VTech's sales will increase in the second half from the first, while its sales of commercial phones in North America is expected to increase in the second half.
Its revenue grew 2.1 per cent to US$876.1 million in the first half, while net profit rose 3.1 per cent to US$91.2 million.
Kim Eng said VTech's high valuation is "warranted, given its net cash position with zero debt, strong cash flow, high return on equity, sustainable dividend yield and decent management team with high quality corporate governance".
VTech declared an interim dividend of 16 US cents per share, the same as last year.