ImageAt the CIMB-organised event. Photo by Sim Kih

MENTION THE Hard Disk Drive (HDD) boom, and a couple of Singapore-listed beneficiaries come to mind: MAP Technology, Broadway Industrial, and Cheung Woh Technologies, for example.

Cheung Woh is the latest to announce its full-year results, as its FY ended at the end of February.

It reported revenue of $124 million, an increase of 36.7% year-on-year as global HDD demand recovered, and the company benefitted too from its other business of manufacturing automotive components.

Sales of HDD-related components increased by 14.1% from $52.4 million to $59.8 million.

Sales of automotive components increased by 69.2% from $23.7 million to $40.1 million as China’s automotive industry sprang to life on the government’s stimulus measures.

These are the two key businesses of the Group, whose net profit leapt 207% to $13.5 million.

Yesterday, its chairman-cum-MD, Mr Law Kung Ying, and its finance-cum-admin director, Ms Law Yu Chui, made a presentation of the financial performance and the business prospects to investors at CIMB-GK Investment Centre in Raffles Place.

Here are some of the highlights of the Q&A session that followed:

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Mr Law and Ms Law (they are siblings) being interviewed by The Edge after their presentation. Photo by Sim Kih
 

Q: We all know labour costs in Singapore are very high, so how do you compete with suppliers in China?

Mr Law: Our automotive component factory is located in China – we have 1,600 employees over there. For the HDD component factory, it’s in Zhuhai, China – we have 1,600 employees too. In total, Cheung Woh has 4,000 people. In Singapore, we have only 72 staff, including myself.

Q: What currency is your revenue mainly in?

Mr Law: Our auto business in China, because it is a domestic business, is conducted in RMB. Our HDD business is in USD. We have a prudent approach by hedging our Sing $ to USD forward 12-15 months based on 50% of our projected profit. It’s a rolling hedging.

Q: And your costs?


Mr Law: Costs are in RMB for HDD business in China. The costs for our Johor operations are in ringgit.

Q: Your trade receiveables have doubled to $42.6 million in the last financial year.…

Mr Law: For HDD segment, the average age of the accounts receivables is around 75 days. For the auto, it is about 150 days. Because of the increase in revenue from the auto sector, we have an increase in the average age of the receivables.

 
CHEUNG WOH

Stock price

39 c
Market cap $102 m
PE ratio 7.5
Dividend yield 3.85%
Net asset value 33.1 c
 

Q What impact do you see of the impact of the Greek/European crisis on your business, especially the HDD segment? 

Mr Law: The growing markets are China and India, which have a low penetration rate for personal computers. Asia is the No.1 consumer of HDDs, followed by the US. Europe, compared to these two, is the smallest.

Europe's economy will slow down but the overall picture is very positive as Asia is intact, financially. I am sure with a low penetration rate and high GDP growth in China and India, the growth of HDD is sustainable.

Q: Are you seeing any slowdown in orders from your clients?

Mr Law: No, not at this moment. Let me tell you, the peak season in a year for HDD is in Sept-Oct-Nov. Now, is the low season, but we don’t see the low season as being very slow at all for our company.

Q Looking at your improvement in gross profit and the auto segment, am I right that you get better margins from auto?

Mr Law: That’s not correct. HDD is capital intensive. Once you hit a certain volume, the profit will be substantially higher. 

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Cheung Woh shares have tripled in the past 12 months.
 

Q: Your HDD revenue numbers didn’t change much last year. But your auto numbers almost double. And your gross profit margin went up substantially, so I am deducing that your auto business gives you better margins.

Mr Law: Yes, for the last financial year. But HDD has a better margin once we hit a certain point.

Q: Any place for capital raising?

Mr Law: No. As of last year-end, we had cash in hand of $11.9 million, and it is growing. That’s why the final dividend is 1-ct, to reward shareholders.

(Note: The interim dividend was 0.5 cent, while in FY09, the final and interim dividends were 0.2 cent and 0.6 cent, respectively).

Q: China has many auto parts suppliers. Are they competing with you?

Mr Law: Let tell you how different we are. We make the seat tracks for the car and the seat recliner. These are safety items and are subject to collision tests and road tests. These modules are patented by our company. Others may not have the technology to pass these tests.

Q: If you look out six months, are there risks that you can identify for your business?


Mr Law: I think the biggest risk is the USD suddenly depreciating. We only hedge the projected profit.


Related stories on HDD companies:

BROADWAY: Analysts' consensus target price upped to S$1.54
MAP TECHNOLOGY says dividend payouts are key to being 'good company'

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