(Reuters) - Cost pressures are piling up for Singapore’s electronics sector, with some listed companies reporting lower profit margins, but analysts expect an improvement in the second half of the year as the holiday season boosts demand.
The slump in the sector, which contributes more than one-third of Singapore’s non-oil domestic exports, comes as the central bank warned the industry would be a drag on economic growth and flagged severe price erosion for electronics firms.
Nine of 15 electronics manufacturers - including Venture Corp, HI-P International and STATS ChipPAC, the biggest in the sector by market value - reported declines in quarterly profit margins in January-March.
Shares of Singapore tech firms have fallen about 9 percent over the past month, according to StarMine’s aggregate for the companies, worse than the 4 percent drop in the FT ST Mid Cap index and the 8 percent drop in FT ST Small Cap index.
“For the outlook, most of them are guiding flat or marginal sequential improvement and pinning hope for a stronger recovery in the second half,” said Jonathan Ng, analyst at CIMB Research in Singapore.
“Some like Hi-P International are probably more optimistic because they have some new projects that will start in the second half and this will add to their existing business.”
Quarterly net profit at Hi-P, which supplies parts to global tech firms including BlackBerry maker Research in Motion Ltd and Apple Inc, plunged 91 percent despite higher revenue.
It said gross profit fell mainly due to higher material costs as well as increased labor costs and overheads partly to prepare for a stronger second half.
Venture has seen its full-year earnings per share estimates downgraded by two five-star analysts this month, according to data from Thomson Reuters StarMine.
Venture and Hi-P have factories across Asia.
Singapore’s central bank said the export price erosion for the sector appeared to be worse in the city-state than the rest of the region and that electronics manufacturers faced pronounced cost pressures from the tight job market and higher foreign worker levies.
Hi-P’s net profit margin dropped to 0.5 percent in January-March from 7.3 percent a year earlier, while margins at Datapulse Technology fell to 16.6 percent from 23.8 percent.
A Purchasing Managers’ Index for Singapore’s electronics sector stayed in positive territory for the fourth straight month in April with a reading of 51.5, unchanged from March.
STATS ChipPAC has a low score of 2 in StarMine’s Smart Holding Model. A lower SmartHolding score suggests a potential fall in institutional ownership.
Editing by Anshuman Daga and John O'Callaghan