Hiwin reports strong Q3 profit

BUILDING PLANS::The company is acquiring land in Kobe, Japan, with work on a new factory to begin there next year, as well as on new plants in Chiayi and China

By Chen Cheng-hui  /  Staff reporter

Mon, Nov 05, 2018 - Page 15

Machinery maker Hiwin Technologies Co (上銀科技) last week reported strong third-quarter profit, but warned that the US-China trade war would lead to declines in shipments and product prices.

The third-quarter results and business guidance from Hiwin, along with the company’s announcement that it is to purchase land in Kobe, Japan, to build production facilities, were largely well-received by investors, pushing its stock price up nearly 26 percent last week compared with the broader market’s 4.4 percent increase.

Hiwin supplies linear guideways, ball screws and industrial robots. The Taichung-based company on Tuesday last week said it logged net profit of NT$1.74 billion (US$56.6 million) last quarter, an all-time high and a gain of 93.96 percent from NT$898.13 million a year earlier. Earnings per share (EPS) reached NT$5.94, up from NT$3.11 a year earlier.

Third-quarter revenue rose 48.8 percent annually from NT$5.61 billion to NT$8.35 billion, while gross margin increased 4.4 percentage points to 40.74 percent and operating margin rose 8.6 percentage points to 25.7 percent.

Due to the weakness of the Chinese yuan, Hiwin posted a foreign-exchange loss of NT$92 million in the quarter, a company earnings report showed.

Cumulative net profit from January to September totaled NT$4.52 billion, an increase of 139 percent from NT$1.89 billion in the same period last year, with EPS rising from NT$6.56 to NT$15.59, also the highest-ever for the period in the company’s history.

Hiwin said it sees growing demand from the US, Europe and Japan, but expects weak demand from China due to trade tensions, which is to affect its shipments this quarter and next quarter.

Product prices are also likely to be adjusted downward next year because of lackluster demand in China, the company said.

“We are more conservative on Hiwin’s margin outlook in 2019, as recently some Chinese companies, such as Inovance Technology Co (匯川技術), Han’s Laser Technology Industry Group Co (大族雷射科技產業集團) and Estun Automation Co (埃斯頓自動化), posted disappointing Q3 results due to pricing pressure and lower utilization,” Bank of America Merrill Lynch analysts Lee Ming-shun (李明勳), Jacqueline Li (李向榮) and Jessie Lo (羅羽捷) said in a client note on Wednesday last week.

Hiwin said it expects business to resume growth momentum in the second quarter of next year following the launches of several new products, and the company is pressing forward on construction of new factories, including the acquisition of 24,692.69m2 of land in Kobe in Hyogo Prefecture for ¥2.16 billion (US$19.1 million), with the company planning to start work on a new factory there next year.

Hiwin also plans to construct new plants in Chiayi and Suzhou, China, next year, as well as acquiring existing factories in Italy to facilitate its expansion in Europe, the company said.

Merrill Lynch analysts said that Hiwin started to sell reducers in August and can self-supply most of the key components for robots weighing less than 20kg.

The firm also started to sell reducers to Japan and Germany, and is expected to generate more sales from robots in 2020, they said.

Yuanta Securities Investment Consulting Co (元大投顧) said there are concerns about overbooking by Hiwin’s customers on expectations of component shortages and price hikes.

“We believe this excess inventory could take several quarters to digest, especially amid the rising risk of a global trade war,” Yuanta analyst Steve Huang (黃柏璁) said in a client note on Tuesday last week. “Hiwin may find it difficult to fill out the capacity it has built during this upcycle, leading to more gross-margin pressure.”

“Management’s comment on a downward trend for shipments and average selling prices ahead should be a good indicator,” Huang said.