Chinese handset design firm Longcheer Holdings Ltd said on November 28 that it expects earnings growth to slow over the next few years, but expects orders in the current year to rise 33 percent.
Shanghai-based Longcheer, with a market value of about US $300 million, provides software, printed circuit boards and handset designs to second- and third-tier Chinese cellphone brands such as Daxian, Gionee, GT Mobile and Tianyu.
It recently won first-tier clients like TCL Communication Technology Holdings Ltd, the handset arm of Chinese electronics giant TCL Corp, as well as ZTE Corp, China's second-largest telecoms equipment maker. "To achieve 40 percent annual growth for our earnings over the next few years is a very challenging target, because over the past few years, our growth rates have been very fast, and our profits have already grown to a certain level," Chief Executive Du Jun Hong told Reuters in a phone interview on Tuesday, referring to compounded annual growth rate.
Longcheer, which listed on the Singapore Exchange in May 2005, is seen posting a consensus net profit of S$61.9 million ($40 million) for the year to June 2007, up 40 percent from net earnings of 224.5 million yuan ($28.6 million) in the previous year, a poll of three analysts by Reuters Estimates showed.
According to a recent report by CIMB-GK Securities, Longcheer is projected to post an annual growth rate of 35 percent for earnings per share in FY2007, 30 percent in FY2008 and 16 percent in FY2009.
Longcheer shares sank 5.1 percent to a two-week low of S$1.12 in late trade after Du's comments hurt sentiment, dealers said. "Our shipment target for FY2007 is more than 8 million units, as we expand our market share in 2G (second-generation mobile technology), 2.5G handsets and wireless terminals, which transmit data for industrial applications," said Du. "There will also be some contribution from 3G (third-generation) and mobile TV handsets, but these will more likely to be drivers in the longer term."
Longcheer shipped nearly 6 million units in fiscal year 2006, more than double the volume of 2.5 million units in FY2005.
The company competes with China Techfaith Wireless Communication Technology Ltd - the country's largest cellphone design house listed on Nasdaq - and SIM Technology Group Ltd. Analysts estimate there are about 60 independent handset design houses in China.
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Du said Longcheer is banking on the Chinese consumer's growing appetite for mobile handsets incorporating the latest features, technology and designs.
"Handsets are increasingly becoming fashion accessories for Chinese consumers, and the demand for new products and new designs is tremendous," he added.
"As a Chinese design house, we have a better understanding of the domestic market and can respond better, compared to the international brands." China, the world's largest telecoms market, had 449 million mobile subscribers as at end-October, official data showed. The domestic handset market is forecast to grow by 25-30 percent a year, according to industry data.
Apart from the domestic market, Longcheer is also eyeing exports to Latin America, eastern Europe and Africa. Du expects exports to account for about one-third of total shipments in the next five years, compared with less than three percent in FY2006. "Within the next two to three years, we think we also have a good chance of getting some of the international brands to become our clients," he added.
With this target in mind, the firm plans to more than double its research and development engineers in the current fiscal year, from over 600 in the previous year.
Du said Longcheer plans to pay a higher dividend in the current year, compared with the previous year, but said the exact amount would be decided by the board. The firm paid out a total dividend of 5.72 Singapore cents per share in FY2006. Longcheer reported a 43 percent jump in net profit to 56 million yuan ($7.13 million) for the three months ended September, its fiscal first quarter, on a 69 percent surge in sales to 615.1 million yuan.