Solomon Systech 1H 2005 Results Net Profit Increased by 62% To US$36.3 Million

Strong Results from Expanding Market Share and New Products Launch

Result Highlights

Six months ended 30 June
	2005		Restated 2004
	US$’m	HK$’m equivalent	US$’m	HK$’m equivalent	Changes
Turnover	185.7	1,444.1	110.1	857.9	+69%
Gross Profit	57.9	450.5	39.7	309.2	+46%
Net Profit	36.3	282.3	22.4	175.1	+62%
Total assets*	238.2	1,852.6	190.9	1,487.0	+25%
Shareholders’ funds	176.3	1,370.8	148.7	1,158.7	+19%
EPS, Basic ^	1.50 US cents	11.7 HK cents	1.08 US cents	8.4 HK cents	+39%
DPS, Diluted ^	1.50 US cents	11.7 HK cents	1.08 US cents	8.4 HK cents	+39%
DPS, Interim	0.51 US cents	4.0 HK cents	0.34 US cents	2.6 HK cents	+54%

* Historical comparative figure is extracted from previous issue of interim report without re-statement
^ EPS calculation is based on the weighted average number of shares for the period

 

• Turnover grew by 69% as a result of gain in market share and timely introduction of new products

• Net profit rose to US$36.3 million, an increase of 62% year-on-year

• Earnings per share was 1.50 US cents(11.7 HK cents)

• The Board resolved to declare an interim dividend per share of 4.0 HK cents, equivalent to 0.51 US cents

• Shipment reached 108.3 million units, an impressive growth of 66% for the period

• Positive outlook remains for the 2H 2005, due to expected strong demand for cellular phones and proliferation of MP3 players

• The Group is optimistic about its future business, especially with the growth from display panel electronics to display system ICs

 

(Hong Kong – 7 September 2005) – Solomon Systech (International) Limited (“Solomon Systech” or “the Group”; SEHK: 2878) achieved a promising half yearly turnover and profit in 2005.

For the period under review, the Group’s turnover increased by 69% to US$185.7 million (HK$1,444.1 million), as compared with the same period last year. The growth was mainly attributable to the Group’s success in gaining market share and introducing new products. Net profit increased by 62% to US$36.3 million (HK$282.3 million). Basic earnings per share grew by 39% to 1.50 US cents per share (11.7 HK cents per share).

The Board of Directors proposed the payment of an interim dividend of 4.0 HK cents per share for the six months ended 30 June 2005.

The Group maintained a healthy financial position. During the review period, its net cash inflow from operations amounted to US$59.7 million and net cash at period’s end was US$149.9 million. It had no borrowings as at 30 June 2005.

The Group’s Managing Director, Mr. Humphrey Leung, said, “The strong results were contributed by market share gains. Driven primarily by the strong demand for high-end cellular phones and MP3 players, we achieved an exceptional YoY growth of 66% in unit shipment in the review period. This significant achievement was benefited from our extensive customer network, comprehensive product offerings and timely introduction of new products.” The Group’s first quarter book to bill ratio was 0.67, a result of seasonality and market price adjustment. In the second quarter, the book to bill ratio increased to 1.24, indicating a trend of rising market demand. As at 30 June 2005, the Group’s indicative backlog of orders was more than 80 million units. “The blended ASP in the first half year had actually dropped by around 30% from the last second half year. However, we were able to maintain our gross margin at a level of 30%, clearly showing the management’s ability to manage seasonality and dynamic changes in market conditions,’ explained Mr. Leung.

According to IDC’s forecast in April 2005, global shipments of cellular phones for 2005 are expected to exceed 760 million units. During the review period, the Group’s total shipment of display ICs was 108.3 million units. The Group believes that it has close to 20% market share in the global cellular phone display ICs area.

 

Units Shipped (million)	1H 2005	1H 2004	Growth (%)	2004
Monochrome STN	18.3	28.0	(35)	47.1
Color STN	61.4	28.8	113	88.2
m-TFT	12.2	0.1	NA	7.1
OLED	16.0	8.1	98	14.1
Miscellaneous	0.4	0.1	300	0.5
Total	108.3	65.1	66	157.0

Note: Miscellaneous includes graphic controller, PDA driver ICs, large display ICs (for 1H 2005 only) and others

 

Currently, Solomon Systech is serving more than 70 display module makers around the world and the Group believes its ICs are deployed in cellular phones of global brand names such as BenQ, Bird, LG, Motorola, Nokia, Panasonic, Samsung, Siemens, Sony Ericsson, etc.

 

During the review period, the shipment volume of color STN (CSTN) display ICs recorded a growth of 113% to 61.4 million units, reflecting the gradual migration of monochrome STN display ICs to CSTN display ICs. Mobile TFT (“m-TFT”) and OLED display ICs also reported phenomenal growth as high-end cellular phones are gaining more popularity and there is a rapid adoption of OLED display in MP3 players. The Group shipped 12.2 million units of m-TFT display ICs and 16.0 million units of OLED display ICs during the period. Solomon Systech started the pilot shipment of large display TFT driver ICs which it believes will become one of its key growth drivers from 2006 onwards.

 

In the past six months, research and development costs were approximately US$5.6 million. To support business growth, Solomon Systech keeps on enhancing its product features and developing new products, namely LTPS m-TFT display ICs, AM-OLED display ICs, LED driver ICs, multi media processors, large display timing controllers and power management ICs. Its R&D team continually designed products using various wafer technology including 0.18 mm. In addition, it formed a specialist team to develop its own wafer process technology so as to reduce costs and production cycle time.

 

For the second half, the Group expects the growth of monochrome display ICs will likely remain flat. As regards CSTN display ICs, the Group maintains a positive view on their shipment in 2005 because of (1) the modestly strong demand for color display (2) the dominance of CSTN in sub-display of cellular phones and (3) the increasing new applications, e.g. home DECT phones.

 

Regarding m-TFT, the Group will devote more resources to developing products, gaining new customers as well as promoting m-TFT’s application in other AV equipment with medium-sized display. For the OLED segment, the Group believes its leadership will further strengthen when more cellular phones start to adopt full color OLED main displays.

 

Following the pilot shipment of large display driver ICs in the first half, the Group will start to work with a few more world-class large panel manufacturers in the region, particularly Japan and China, and in the near-term target three product areas, namely notebook computers, LCD monitors and LCD TVs. These initiatives plus the commercialization of micro-display and e-paper display ICs will warrant economic values and alternative growth for the Group.

 

Commenting on the future, Mr. Leung said, “We are optimistic about the future display business of the Group. In addition to launching new products in existing “Display Panel Electronics” business for mobile display, large display and new display, we have set up a new business unit to develop “Display System ICs”, which includes multi media processors, timing controllers and power management ICs, etc. We will continue to add resources and launch new products into both “Display Panel Electronics” and “Display System ICs” so as to provide our customers a comprehensive portfolio of IC products around display. As one of the pioneers in new display IC technology, we are aiming at providing total display IC solutions.”

 

Solomon Systech (International) Limited
Condensed Consolidated Profit and Loss Account
For the Six Months Ended 30 June 2005
	Unaudited Six months ended 30 June
	2005		Restated 2004
	US$’000		US$’000
Turnover	185,713		110,125
Cost of sales	(127,782)		(70,429)
Gross Profit	57,931		39,696
Other revenues	1,280		120
Research and development costs	(5,563)		(4,615)
Selling and distribution expenses	(1,588)		(688)
Administrative expenses	(7,168)		(7,243)
Other operating income / (expenses)	(27)		211
Operating profit	44,865		27,481
Finance costs	(1)		(1)
Share of result of an associated company	(74)		(22)
Profit before taxation	44,790		27,458
Taxation	(8,486)		(4,986)
Profit attributable to shareholders	36,304		22,472
Dividends	12,912		24,432
Earnings per share (US cents)
– Basic	1.50		1.08
– Diluted	1.50		1.08

 

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