By business sector
The computer & peripheral was the largest market segment for the Group in FY2006, accounting about 42% of total turnover. Next in line were communication & network sector, followed by consumer electronics, with revenue contribution of 26% and 13% respectively. Automotive accounted for 9% and the rest were categoried under others.
By geographical sector
China has been the Group's largest and one of its fastest growing market. Its sales went up from US$82.4m in FY2003 to US$291.3m in FY2007. Share of China's contribution in FY2007 was 51% of the overall sales compared to 34% in FY2003. Together with Southeast Asia (20% of FY2007 turnover) and other Asian countries, the contribution of Asia market grew to 75% in FY2007 (See chart below).
Turnover breakdown by geographical segments: FY2000 vs. FY2007
On the other hand, the share of Europe and America decreased to 18% and 6% respectively in FY2007.
By layer count
While the sales of 2 to 6 layered PCBs consistently contributed about 70% of revenue, the management hopes to improve its profitability by shifting its product mix towards more sophisticated products, such as the higher layer count PCBs and HDI. The Group deems HDI to be a key growth drivers in years to come.
Historical performance
Business of the Group follows the cyclical nature of the PCB industry and is very much affected by the boom and bust of the technology sector.
FY2002: Demand for PCB remained weak after the burst of the dot.com bubble. In addition, excessive global PCB production capacity also resulted in the erosion ASP (weighted ASP of PCB products dropped by 15.7% during 1H FY2002).
FY2003: Economic prospect was dampened by the outbreak of Iraq war (the 2nd Gulf War) and SARS. At the same time, ASP continued to be under pressure. ASP of 8-layer and above PCBs dropped 26.2%, leading to decline in overall ASP of 20.1% during the year.
FY2006: sales of 6-layer and above products decreased despite a modest growth in the 2- and 4-layer PCBs. As a result of the change in product mix to lower layer count business, ASP declined by about 4.2% on y-o-y comparison.
Profitability
Based on data available (FY2001 - 2007), growth of gross profit has been erratic due to business cycle as well as fluctuations in raw material prices and average selling prices of PCBs. Average annual growth rate of gross profit was 4.3% with average gross profit margin at 22.1%.
Total operating expenses grew about 9.6% on average but its share over turnover has declined to below 10% in the recent years.
Despite the problems in FY2002 and FY2003, the Group remained profitable. Nonetheless, earning growth was far from smooth.
With the recovery of demand towards the end of FY2003, the Group's was operating at about 90% of its capacity. Hence, capex for FY2004 was increased to to US$92.2m (FY2003: US$22.9m, + 301.8%) to ramp up production capacity.
As a result, finance cost surged 202.0% in FY2005 as bank borrowings increased. (Nevertheless, interest coverage and net gearing ratio remains comfortable at 16.1 and 35.2% respectively.) Slow down in the earning growth in FY2005 was also affected by an exceptional items of US$1.7m (of which, $1.4m was redundancy payment made to streamline the Group's Hong Kong plant and US$0.3m was for non-recurrent professional fees related to the takeover offer made by Kingboard) as well as increased of effective tax rate from 7.3% to 10.2%.
The Group was operating near full capacity utilization in FY2006. Besides expanding production capacity, it also set up a new plant to focus on the more sophisticated and higher value-added HDI PCBs to improve profitability.
In FY2007, the Group's gross margin and profitability were adversely affected as its new plants in Kaiping experienced a longer than expected learning curve and low manufacturing yield on complex product categories. The management took rigorous measures including strengthening management and workforce as well as process and product capabilities to improve production yield. Losses at the Kaiping plants have been narrowing since.
According to the recent research report by CIMB, E&E intends to delay the commencement of its new HDI plant amid the current economic slowdown.
Notes:
(1) Reporting currency was changed from SGD to USD in FY2003
(2) End of financial year was changed from 30 June to 31 Dec in FY2006
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Updated on 26 Nov 2008:
Further Number Crunching on Earning Growth
If historical performance is of any indication, average growth rate of profit attributable to equity holders of the Company:
FY1991 - FY2007 (16 years): 19.3%
FY2000 - FY2007 (7 years): 15.2%
The above figures should be read with care as growth rate of FY2004 was boosted to 186% after negative growth of 54% and 42% in FY2002 and FY2003 respectively. Excluding these 3 years, the average growth rate will look as below:
FY1991 - FY2007 (13 years): 16.9%
FY2000 - FY2007 (4 years): 4.3%
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