Truly third quarter profit up 10.5% to HK$641.3mln

The company has completed migration to higher resolution compact camera module and single to multi touch panel technology.

Truly International Holdings Limited (“Truly”), a leading liquid crystal display (“LCD”) module manufacturer and solution provider, on Tuesday announced its unaudited third quarterly results for the nine months ended 30 September 2010.

During the period under review, the Group recorded an unaudited turnover of approximately HK$5,351.6 million, representing a growth of 26.5% from HK$4,229.7 million in the corresponding period last year. Unaudited gross profit rose 10.5% from HK$580.2 million to approximately HK$641.3 million while the unaudited gross profit margin was 12.0% (2009: 13.7%). Unaudited net profit was approximately HK$262.9 million, 7.8% lower than HK$285.0 million in the corresponding period in 2009 and unaudited net profit margin was 4.9% (2009: 6.7%). Unaudited earnings per share were HK53.0 cents (2009: HK60.0 cents).

The decline in gross and net profit margins was attributable to the steep increase in number of workers as well as an average salary that outpaced revenue growth. In addition, expenses were incurred for the development and migration of Compact Camera Module (CCM) technology from 0.3 megapixel to 2 and 3 megapixel resolutions and switching from single-touch resistive touch panel to multi-touch capacitive touch panel technology. Moreover, the spike in the exchange rate of the Japanese Yen caused a significant foreign exchange loss to the Group’s regular un-hedged purchases and outstanding payables denominated in Japanese Yen.

The Board of Directors recommended a third interim dividend payment of HK8.0 cents (2009: HK5.0 cents) and a bonus issue of shares to shareholders on the basis of one bonus share for every ten existing shares. The Board also proposed that each existing share be subdivided into five subdivided shares, according to a Truly report.

Mr. Steven LAM Wai Wah, Chairman of Truly, said, “During the period under review, Truly captured a bigger market share to enhance the utilisation rate of our production lines. Accompanied with an increase in both costs of labour and Japanese yen denominated purchases, our profit margins were reduced. In return we built a broader customer base with more advance high-end applications as well as product mix. The increased asset utilisation generated strong EBITDA (“Earnings before Interest, Tax Depreciation and Amortisation) amounting to HK$679 million and hence improved the Group’s debt position.“

”Truly has already started to supply LCD modules with High Resolution Compact Camera Module (“CCM”) and Multi Touch capability to the China-based domestic as well as and international branded Smartphone manufacturers for both export and domestic markets. The Chinese Smartphone industry’s potential must not be under estimated, as many previously so-called “white box” or “Shan Jai” factories are now vibrant players in the global mobile communication world.”

“As a token of appreciation to our shareholders and show of confidence by the Directors, the Board has recommended to pay the third interim dividend of HK8.0 cents per existing share and a bonus issue of one share for every ten existing shares. The Board of Directors also recommended a subdivision of each existing share into five subdivided shares, as we believe such initiatives could enhance liquidity and benefit the shareholders in the long run.”

Looking ahead, the Group sees opportunities as well as challenges in the market. The group expects further moderate increases in the average salary and number of workers in 2011 rather than in the fourth quarter in 2010, with the 2010 manpower allocation already completed during the third quarter.

The Group could transfer part of its labour cost and material cost increment on to some clients, who are well-informed and understand the situation, in 2011. An improved product mix yielding better gross profit margins should help offset the rising labour expenses in the coming year.

The migration from low resolution to high resolution CCM and switching of single to multi touch panel technology and capacity were completed with the resulting expenses one-off and non-recurring in nature. Mr. Lam concluded, “The majority of mobile products now come with high resolution CCM and multi-touch capacitive touch panel technology as standard. Truly has already entered the market and is capturing market share. We believe that our leading-edge technology and solid global customer base will be our key growth drivers.”

To mitigate currency exchange risk, the Group has established procedures to manage such risk through exchange forward contracts to lock in the cost of Yen denominated materials and equipment purchases.
All the exchange forward contracts are to be entered into by the Group for hedging purposes and be matched with the budget purchase plan or outstanding payables at an appropriate forward rate.