PMI Points To Bottoming Out Of Electronics Sector
The latest Purchasing Managers’ Index released by the Singapore Institute of Purchasing & Materials Management (SIPMM) on 1 Febuary, pointed to a rosier picture for the local electronics sector. Electronics PMI returned to expansion territory in January, rising 0.8 points from December to 50.5 in January, thanks to a fresh expansion in new orders both locally and from abroad. A reading above the 50-point threshold means that managers feel the industry is expanding. Economists took cue from the latest readings and noted that the plunging electronic output could have reached its bottom. Citigroup Kit Wei Zheng also took note of the rise of the new electronics export orders sub-index to its highest levels since June-11, while the electronics employment index has also arrested its fall. However, Kit feels that the increase in production has been relatively subdued compared to that of new orders as businesses strive to keep inventories lean due to the uncertain economic outlook.
Significance: Despite the better electronics PMI numbers, economists are not yet ready to jump onto the recovery bandwagon as they point to the overall manufacturing PMI which slipped 0.8 points to 48.7 in January. This would mark a seventh straight month under the 50-point threshold signaling a possible contraction in January’s manufacturing output.
STATS ChipPAC’s FY11 Results Hurt By Thai Floods
STATS ChipPAC plunged into the red as it suffered from a fall in gross margins as well as impairment losses arising from the Thai Floods last year. The firm reported a net loss of US$45 million ($56.1 million) for 4Q11 against a net profit of US$19 million ($23.7 million) in 4Q10. However, STATS ChipPAC’s topline benefited from robust demand in the communications market that had offset a fall in revenue from the suspension of operations in Thailand. Net revenue for 4Q11 stood at US$426.7 million ($532.2 million), 1% higher than a year ago. Ultimately, unfavourable product mix, higher material costs and greater labour expenses negated the revenue gains as gross profit declined 11.7%. The firm’s bottomline was further assailed by increasing costs pressures from selling, general and administrative expenses, forex losses and more pertinently, the impairment and other charges associated with the Thai floods which took away US$55.5 million ($69.2 million) from its net profit.
Significance: STATS ChipPAc is expected to continue to be affected by its Thai operations as plans to restart partial operations have been temporarily shelved due to severe damage to the facility and equipment. Management hopes the facility will be operational by 4Q12.
Mercator Lines’ Earnings Slump In 3Q12
Mercator Lines (Singapore) (Mercator) registered a 77% slide in net profit for 3Q12 to US$1.17 million ($1.46 million). The Indian-owned international dry bulk shipping company announced 3Q12 revenue fell 11% to US$36.05 million ($45 million) attributable largely to a fall in spot rates and renewal of long term contracts at lower rates. The firm’s bottomline also took a hit as voyage expenses, direct vessel operating expenses and depreciation expense rose 22%, 3% and 10% respectively. In the face of growing challenges in the shipping industry, chief executive officer, Shalabh Mittal said that, “While the tough market conditions continue to be a concern, our contractual revenue coverage, strong balance sheet and unencumbered assets will help us face the challenges ahead”.
Significance: Due to the immense oversupply of vessels, the downward trend of freight rates has continued into the start of the new calendar year and has fallen significantly by 47% to around US$6,800. Any standstill or further fall in rates will continue to adversely affect Mercator’s earnings in the future.