The fiscal year's settlement date was changed from December 31 to March 31. (1) The company issued an announcement on July 23, 2010. In order for the fiscal year settlement date to be consistent with the business process, the company changed the fiscal year settlement date from December 31 to March 31. (2) The results announced this time are unaudited interim results for the 12 months ending December 31, 2010, which are equivalent to our current full-year earnings forecast for fiscal year 2010. (3) The next earnings release date will be on or before June 30, 2011 to announce the final results for the 15 months ending March 31, 2011. At that time, we will adjust the fiscal year settlement date in our forecast table to March 31.
Revenue and profit fell short of expectations. (1) Sales revenue for the period was HK$1.48bn, an increase of 33.4% year-on-year, 7.4% lower than our forecast (HK$1.60bn). The main reason was that sales of LED decorative lighting and LED general lighting (including LED components) were 11.2%\ 11.9% lower than our expectations, which was the main reason that dragged down performance performance. (2) Core net profit was HK$105m, significantly lower than our expectations (HK$206m), mainly due to lower revenue and gross margin than expected and a sharp increase in cost ratios. Core net profit per share was only HK$0.115, a decrease of 41.2% year-on-year. No dividends. The company acknowledged that part of the reason was that a total of HK$56m was set aside for accounts receivable and inventory during the period.
Gross margin is on par with expectations, but the cost ratio has risen sharply. (1) The comprehensive gross margin for the period was 32.5%, 1.5 percentage points lower than our expectations. The main thing is that the gross margin of stage lights recorded a lower level of 18%, which is 4 percentage points lower than our expectations, while the gross margin of LED decorative lights and LED lighting products in general remained around 38%, which is in line with our expectations. (2) The sales and administrative expenses ratio rose sharply to 28.5% during the period, the highest level in recent years, and 6 percentage points higher than our expectations.
The proportion of LED products and domestic sales have both increased. (1) The proportion of the company's LED products has increased to 71.8% from 63.1% in 2009. The number of MOCVD machines increased from 7 to 19 during the period, and the production capacity of epitaxial films will reach 45,000 pieces per month, which will benefit the continuous increase in the proportion of LED products. (2) The company increased its marketing efforts to the domestic market and set up a dedicated R&D and marketing team for the domestic market. The share of domestic sales also increased from 13.4% in 2009 to 23.8%.
Profit forecasts were lowered, the target price was lowered to HK$3.48, and the investment rating was lowered to “neutral”. Under the premise that many LED upstream insole/chip and downstream application companies all recorded good results in 2010, the company's performance was disappointing, indicating that the company's marketing management and cost control needed to be strengthened. We drastically lowered the company's operating revenue forecast for FY11\ FY12 to HK$1.81bn\ HK$2.23bn, the core net profit classification was HK$134m\ HK$159m, and the core net profit per share was HK$0.15\ HK$0.17. The target price was lowered to HK$3.48, which is equivalent to the anticipated price-earnings ratio of 20X FY12F and lowered the investment rating to “neutral”.