HANA Microelectronics PCL: An In-Depth Financial Analysis

Date: Thursday, 14 November 2024

Broker: UOB Kay Hian

Company Overview

HANA Microelectronics PCL (HANA) is a prominent player in the electronics manufacturing service sector. The company specializes in a variety of product groups including PCBA, IC, LED, and LCE assembly.

Financial Performance

HANA reported a net profit of Bt406m in 3Q24, representing a significant 45% decrease year-on-year (yoy) but an 8% increase quarter-on-quarter (qoq). The earnings were 17% and 37% below our and consensus estimates respectively, primarily due to lower-than-expected gross profit margins and revenue, coupled with higher-than-expected SG&A-to-sales ratios. The gross margin dropped to 6.2% due to several factors such as baht appreciation, lower sales, and higher operating costs.

3Q24 Financial Highlights

Key Financial Metrics

The gross margin for 3Q24 stood at 6.2%, a 9.5ppt decrease yoy and a 6.2ppt decrease qoq. The SG&A-to-sales ratio increased slightly to 7.0% from 6.9% in 3Q23 and 6.2% in 2Q24. The net profit margin decreased to 6.7% from 11.2% in 3Q23 but increased from 5.6% in 2Q24.

Revenue Breakdown

HANA’s 3Q24 revenue was Bt6.1b, down 7% yoy and 10% qoq. Revenue was pressured by declines in the microelectronics and integrated circuit (IC) divisions. The microelectronics division, which accounted for 64% of total revenue, saw a 5% yoy and 12% qoq drop. The IC division, contributing 29% of total revenue, declined 17% yoy and 4% qoq.

Gross Profit Margin

HANA reported a narrowed gross margin of 6.2%, primarily due to softer revenues, baht appreciation affecting inventory revaluation, lower selling prices of EV-related products, and higher operating costs from capacity expansion.

Dividend Payment

HANA announced an interim dividend payment of Bt0.25/share for 1H24, implying a dividend yield of 0.71%. The ex-dividend date is 28 Nov 24 and payment is scheduled for 13 Dec 24.

Future Projections and Valuation

Despite the disappointing 3Q24 earnings, HANA maintains a BUY recommendation with a target price of Bt48.00. This target price is based on a 21x 2025F PE, pegged to its five-year mean PE. The expectation is that HANA will see a strong rebound in earnings in 2024 due to the low base in 2023 caused by defective SiC wafers and product development issues.

Key Catalysts and Risks

Positive Catalysts

• Recovery of consumer electronic products
• Strong growth in the Si and SiC industries
• Baht depreciation

Negative Catalysts

• Rising defective costs
• Higher utilities and electricity costs
• Baht appreciation

Environmental, Social, and Governance (ESG) Considerations

Environmental

HANA is committed to delivering energy-efficient products and supporting the global transition to clean energy. Their end-application products are used in EV cars, power management, and renewable energy applications.

Social

HANA emphasizes quality products with on-time delivery and competitive pricing. The company promotes employees’ health and safety through various workplace programs, including drug-free and disease-free initiatives.

Governance

The Board of Directors is committed to good corporate governance, ensuring the company’s business is conducted efficiently and transparently.

Conclusion

HANA Microelectronics PCL remains a resilient player in the electronics manufacturing sector despite facing challenges in 3Q24. With strategic measures and a focus on innovation, the company is poised for a strong rebound in 2024. Investors are encouraged to maintain a BUY position, capitalizing on the expected recovery and growth in the coming years.