Thursday, April 22, 2010

Action Asia Posts Strong 1Q10, Earnings More Than Doubles

Action Asia's revenue increased by 95% with profit after tax attributable to shareholders surging to $5.3m from $1.8m previously. The company said that the increase in top line was mainly contributed by increased orders by Philips, its main customer for its consumer lifestyle/entertainment segment.

CIMB-GK, the only brokerage covering the company reiterated its Buy rating but with a higher target price of $0.40, pegging Action Asia at slightly below 6xCY11 P/E, offering 100% upside potential. CIMB-GK believes the positive momentum will continue, underpinned by its continuous effort to deliver innovative consumer lifestyle entertainment products.

The brokerage was not entirely optimistic. It said that there was spike in other operating expenses due to greater R&D, distribution and selling, and warranty expenses as a result of the higher sales. There was also a rise in inventories when compared to 4Q09. However, this was due to anticipation of higher demand in the coming quarter.

At its recently held AGM, when asked to elaborate on the growth prospects, Action Asia's management said that last December, the company started trial runs in its new factory in Shenzhen, which has a production capacity of 10 million units, up from about 3 million in the previous rented factory.

Thus, the full effects of the new factory's enlarged production capacity will be felt from this year.

Action Asia expects the factory’s production volume this year to be 5 million units of “consumer lifestyle entertainment multimedia products”, such as portable DVD players, digital photo frames and home DVD players.

On top of that, its factory in Penang, Malaysia, became profitable last year (after a loss-making FY08) and continues to see higher orders for its in-car entertainment systems from customers in the US and Malaysia.

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