KARIN Technology, which distributes electronic components and designs integrated circuit (IC) applications and IT infrastructure, believes it merits investors' attention because of its high growth potential.
"We are now at a stage of faster organic growth seen across our three business segments - components distribution, IC application design and IT infrastructure," said its chairman Philip Ng.
The firm reported a 33.1 per cent rise in net profit to HK$40.2 million (S$7.45 million) on 31 per cent growth in sales for the year ended June 30. Full-year revenue was HK$1.4 billion, while basic earnings per share stood at 20.4 HK cents - up from 15.3 HK cents a year earlier.
Touching on the growth drivers, Mr Ng sees "adding new components vendor in LCD modules solutions as one of the key growth engineers in both IC application design and components distribution".
The firm said it will continue to expand its components distribution business, by extending its reach in Asean, Hong Kong and China.
The company said it stands out for its established presence in China's electronics industry and its technical capability in developing IC software application design solutions.
"We have kept our competitiveness in the distribution and trading business by broadening our product and service range to meet the growing and changing demands of our customers," said Mr Ng.
Karin is also helped by its strong branding and diversified customer base covering various sectors in the electronics industry in Hong Kong and China.
It currently has a customer pool of over 1,000 firms, including multinational corporations, contract manufacturers, electronic product manufacturers and traders.
Also, it provides value-added services such as warehousing, just-in-time delivery, buffering and technical support services to end consumers.
As for the IT infrastructure segments, Mr Ng said it will gain traction driven by demand from the banking, financial and other industrial sectors, owing to "the need for data storage management solution which will become increasingly more demanding and sophisticated".
The company has expanded its business to include new components market, where "we presently supply a full range of data control cables, connectors, power voltage cables and connectivity products of cables and accessories and equipment for various application found in most industries".
To date, the firm has secured business with new vendors supplying remote control IC, and Blue Tooth, and there are plans to provide colour LCD modules for the consumer electronic and automobile industries.
The firm is also open to inorganic growth as seen from its recent purchase of a 70 per cent stake in IMI Kabel, which distributes a full range of cable products such as data control cables, connectors, power voltage cables, other cable products and accessories.
"This will boost our sales and earnings from the components distribution business as well as help Karin Tech gain a foothold in the Asean market."
Karin expects IMI Kabel to contribute $10 million in full-year revenue ending June 30, 2008.
Mr Ng sees vast untapped potential in China, and expects greater contributions from that market.
Indeed, "we are actively expanding our business in China, which currently accounts for some 21 per cent of its business."
The firm also believes it will be able to maintain its strong growth momentum.
During the interview, Mr Ng also highlighted a few challenges ahead.
The first is the already keen market competition, which looks set to intensify. "Customers are constantly looking for more value-added services and one-stop solutions, even as margins are being squeezed."
To meet this challenge, Mr Ng said the firm regularly upgrades its technological skills and capabilities, business and financial management competencies, and has invested in a strong IT platform that enables the firm to scale up to its operations easily.
The second challenge stems from the cyclical electronics industry, while "corporate customers for IT infrastructure need more storage, better security and more scalability in data storage management for example."
For example, "component distribution customers require more attention to cost and supply chain logistics. IT design application customers require more innovation, proactive solutions and rapid turnaround time".
Plus, there is the risk of global downturn, following the US sub-prime troubles.
To tackle this issue, the firm is focusing on the China business to take advantage of the fast-growing consumption market there.
Financially, Karin maintains stringent control over its cash and cost management.
"For example, we constantly review our procurement and direct cost positions. We keep a close watch over our cash conversion, inventory levels and payments to align them with customers' demand cycles and supplier cost trends."
In a report, OCBC Investment Research said the firm had registered robust sales in recent months, driven by the strong demand for mobile phones in China.
Citing statistics from China's Ministry of Information Industry, OCBC said that mobile phone users have exceeded 515 million by end August this year, a rise of 6.8 million users on average, "while the production of mobile phones hit 347.6 million units between January and August, up 28 per cent over the same period last year."
Also, the brokerage believes that the robust mobile phone growth will continue, based on forecasts from Taiwan-based Market Intelligence Center (MIC).
Specifically, it said "the outlook for the rest of the year remains upbeat, as MIC believes shipments will exceed 147 million units in 3Q07 and approach 166m units in 4Q07.
"This translates into QoQ growth of 11.4 per cent and 12.9 per cent in 3Q and 4Q, respectively."
Therefore, OCBC raised its FY08 revenue forecast and earnings forecasts in FY08 and FY09, and issued a "buy" on the stock with a fair value of 44 cents.
