According to the Daiwa Development Research Report, VTECH HOLDINGS (00303) announced results for the first half of fiscal year 2023. Revenue was in line with expectations, but gross margin fell slightly short of expectations, mainly due to increased inventory provisions. During the period, revenue from the telecom products division fell 4.6% year-on-year in the first half of fiscal year 2023, and both residential and commercial telephone sales declined. Only the company's new telecom product line showed impressive performance, such as baby monitors, integrated access devices (IADs), etc., all of which saw growth. Due to increased inventory in retail channels, the company now expects revenue to decline year-on-year in fiscal year 2023 (previously growth guidance), but will tighten cost control measures. The company's performance guidance for the second half of fiscal year 2023 was weak.

Gross margin increased 0.9 percentage points year-on-year to 28.3% in the first half of fiscal year 2023 due to lower raw material costs and higher sales prices. The company maintained its interim dividend of $0.17, the same as the previous year, but due to worsening market conditions, the company's net cash balance fell to a multi-year low. The bank believes that the annual dividend may be cut from 99% in the past. However, given its relatively solid operating history, the bank reiterated its “outperform the market” rating even when the macro environment was challenging. After lowering the gross margin forecast, the bank lowered its profit forecast for the 2023-24 fiscal year by 12-13%, and lowered the target price by 32% from HK$74 to HK$50.