Comtec Solar Systems Group Limited — Interim / Quarterly Report 2004

Dec 22, 2003

Sun East Technology (Holdings) Limited

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SUN EAST TECHNOLOGY (HOLDINGS) LIMITED 日東科技（控股）有限公司[*]

(incorporated in Bermuda with limited liability)

SUMMARISED ANNOUNCEMENT OF INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003

The Board of Directors (“the Board”) of Sun East Technology (Holdings) Limited (“the Company”) announces the unaudited consolidated results (“the Unaudited Results”) of the Company and its subsidiaries (collectively, “the Group”) for the six months ended 30 September 2003 (“the Period”). The Unaudited Results have not been audited by the Company’s auditors, but have been reviewed by the Company’s Audit Committee on 19 December 2003:

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Sun East Technology (Holdings) Limited

CONDENSED CONSOLIDATED PROFIT & LOSS ACCOUNT

		Six months	Six months
		ended	ended
		30 September	30 September
		2003	2002
		(Unaudited)	(Unaudited)
	Notes	HK$’000	HK$’000
TURNOVER	3
Continuing operations		224,756	168,688
Discontinued operations		–	103,217
		224,756	271,905
Cost of Sales		(181,964)	(247,491)
Gross profit		42,792	24,414
Other revenue		1,117	1,688
Selling and distribution expenses		(8,513)	(16,346)
General and administrative expenses		(15,540)	(26,323)
Other operating expenses		–	(1,291)
PROFIT/(LOSS) FROM
OPERATING ACTIVITIES	4	19,856	(17,858)
Finance costs	5	(581)	(1,030)
Share of results of an associate		–	–
PROFIT/(LOSS) BEFORE TAX
Continuing operations		19,275	(6,719)
Discontinued operations		–	(12,169)
		19,275	(18,888)
Tax	6
Continuing operations		(1,269)	(1,186)
Discontinued opeartions		–	(367)
		(1,269)	(1,553)
NET PROFIT /(LOSS) FROM ORDINARY
ACTIVITIES ATTRIBUTABLE TO
SHAREHOLDERS		18,006	(20,441)
Interim dividend	7	4,200	–
EARNINGS/(LOSS) PER SHARE	8
– Basic		5.77 cents	(6.55 cents)
– Diluted		N/A	N/A

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. PRINCIPAL ACTIVITIES

The principal activities of the Group comprise the design, manufacture and distribution of Printed Circuit Board (“PCB”) assembly equipment, automatic production line and automatic logistic warehouse.

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Sun East Technology (Holdings) Limited

2. BASIS OF PRESENTATION AND PRINCIPAL ACCOUNTING POLICIES

Basis of presentation

The unaudited condensed consolidated interim financial statements of the Group are prepared in accordance with Hong Kong Statements of Standard Accounting Practice (“SSAP”) 25 “Interim financial reporting” issued by the Hong Kong Society of Accountants and the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

The accounting polices and the basis of presentation are consistent with those used in the annual financial statements for the year ended 31 March 2003, except as described below.

In the Period, the Group has adopted SSAP 12 (Revised) “Income Taxes”. The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. In previous years, partial provision was made for deferred tax using the liability method under which a liability were recognized in respect of timing differences arising, except where those timing differences were not expected to reverse in the foreseeable future. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognized in respect of all temporary differences between the carrying amounts of assets and liabilities in the condensed consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, with limited exceptions. In the absence of any specific transitional requirements in SSAP 12 (Revised), the new accounting policy has been applied retrospectively. The adoption of this standard has had no material effect on the results for the prior accounting periods. Accordingly, no prior period adjustment has been required.

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Sun East Technology (Holdings) Limited

3. SEGMENT INFORMATION

(a) Business segments

The following table presents revenue and results for the Group’s business segments.

Group

Group
	Continuing Operations
	Production	lines and	Brand name			Discontinued operations
	production		production		Consumer		Sub-contracting
	equipment		equipment		products		services		Elimination		Consolidated
	six months ended		six months ended		six months ended		six months	ended	six months ended		six months	ended
	30 September		30 September		30 September		30 September		30 September		30 September
	2003	2002	2003	2002	2003	2002	2003	2002	2003	2002	2003	2002
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
	HK$’000	HK$’000	HK$’000 HK$’000		HK$’000	HK$’000 HK$’000 HK$’000			HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to external
customers	165,820	119,337	58,936	49,351	–	90,606	–	12,611	–	–	224,756	271,905
Other revenue – external	–	57	–	–	–	–	–	–	–	–	–	57
	165,820	119,394	58,936	49,351	–	90,606	–	12,611	–	–	224,756	271,962
Segment results	13,721	(12,144)	6,183	4,809	–	(8,336)	–	(3,209)	–	–	19,904	(18,880)
Interest and
unallocated income											1,117	1,631
Unallocated expenses											(1,165)	(609)
Profit/(loss) from
operating activities											19,856	(17,858)
Finance costs											(581)	(1,030)
Share of results of
an associate											–	–
Profit/(loss) before tax											19,275	(18,888)
Tax											(1,269)	(1,553)
Net profit/(loss) from
ordinary activities
attributable to
shareholders											18,006	(20,441)

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Sun East Technology (Holdings) Limited

(b) Geographical segments

The following table presents revenue and results for the Group’s geographical segments. Group

Group
			The People’s Republic
	Hong	Kong	of China	(“PRC”)	European Union		Elsewhere		Consolidated
	Six months ended		Six months ended		Six months ended		Six months ended		Six months	ended
	30 September		30 September		30 September		30 September		30 September
	2003	2002	2003	2002	2003	2002	2003	2002	2003	2002
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue:
Sales to external
customers	63,130	61,013	157,776	127,671	2,620	60,439	1,230	22,782	224,756	271,905
Segment results	7,204	(3,179)	12,573	(8,416)	32	(5,291)	95	(1,994)	19,904	(18,880)

4. PROFIT/(LOSS) FROM OPERATING ACTIVITIES

PROFIT/(LOSS) FROM OPERATING ACTIVITIES
	Six months ended
	30 September
	2003	2002
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Profit/(loss) from operating activities has been
arrived at after charging:
Depreciation	7,996	14,289
Cost of inventories sold and services provided	181,964	247,491
Amortisation of deferred development cost	–	73
Amortisation of technical know-how	2,750	385

5. FINANCE COSTS

FINANCE COSTS
Interest on bank loans and overdrafts wholly repayable within five years Interest on finance leases	Six months ended 30 September 2003 2002 (Unaudited) (Unaudited) HK$’000 HK$’000 518 865 63 165 581 1,030
		1,030

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Sun East Technology (Holdings) Limited

6. TAX

TAX
Hong Kong Elsewhere Deferred Tax charge for the period	Six months ended 30 September 2003 2002 (Unaudited) (Unaudited) HK$’000 HK$’000 – – 1,269 1,553 – – 1,269 1,553
		1,553

Hong Kong profits tax has not been provided for the period as the Group has adjusted tax loss carried forward from last year. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

7. INTERIM DIVIDEND

The directors have resolved to declare an interim dividend of HK1.2 cents (2002: NIL) per share in respect of the six months ended 30th September 2003.

8. EARNINGS/(LOSS) PER SHARE

The calculation of basic earnings per share is based on the net profit from ordinary activities attributable to shareholders is for the period of approximately HK$18,006,000 (2002: loss of HK$20,441,000), and the issued share capital of 312,000,000 shares (2002: 312,000,000 shares). Diluted earnings per share has not been calculated as no diluting event existed during the period.

9. RELATED PARTY TRANSACTIONS

There is no significant related party transaction during the period ended 30 September 2003.

10. OPERATING LEASE ARRANGEMENTS

As lessor

The Group leases its investment property under an operating lease arrangement, with the lease negotiated for a term of two years. The terms of the lease generally also require the tenants to pay security deposits and provide for periodic rental adjustments according to the then prevailing market conditions.

At 30 September 2003, the Group had total future minimun lease receivables under non-cancellable operating leases with its tenant falling due as follows:–

Within one year In the second to fifth years, inclusive	As at 30 September 2003 (Unaudited) HK$’000 83 14 97	As at 31 March 2003 (Audited) HK$’000 84 54
		138

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Sun East Technology (Holdings) Limited

11. COMMITMENTS

At the balance sheet date, the Group had the following commitment:

Capital commitments in respect of the acquisition of fixed assets: Contracted, but not provided for	As at 30 September 2003 (Unaudited) HK$’000 –	As at 31 March 2003 (Audited) HK$’000 974

12. CONTINGENT LIABILITIES

At the balance sheet date, the Group did not have any significant contingent liabilities.

13. POST BALANCE SHEET EVENTS

On 2 October 2003, the Company, Mind Seekers Investment Limited (“Mind Seekers”) and GuoTai Junan Securities (HK) Limited (“GuoTai Junan”) (an independent third party) entered into a placing and subscription agreement in respect of the placing of 38,000,000 shares through GuoTai Junan to independent investors at a price of HK$0.61 per share. On completion of the placement, Mind Seekers subscribed for 38,000,000 new shares at a price of HK$0.61 per share and proceeds of approximately HK$23 million before related expenses, were received by the Company. The excess of the consideration received for shares issued over their nominal value, amounting to approximately HK$19 million, before related expenses, was credited to the share premium account.

14. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the current period’s presentation.

BUSINESS REVIEW AND OUTLOOK

During the first half of the year, the Group has achieved excellent sales results. This coupled with the increase in the Group’s overall gross margins of its new products, such as lead-free soldering machine, SMT series, automatic production lines and micro electronic precision wire bonding machine. The group restructuring and redeployment of resources conducted earlier this year and the stringent control of cost and expenses, have contributed to the successful turnaround of the Group. On the other hand, the disposal of Pro-Tech Industries Corp. during the previous financial year, a wholly-owned subsidiary of the Company with uncertain business prospects, has enabled the Group to allocate more resources towards products with high growth and returns for enhancing the Group’s profitability. Meanwhile, it was the peak period during the last two years for the investment in the principal business of “Research, development and sales of electronic production equipment”. At present, the Group has become a onestop electronic equipment provider, supplying the most comprehensive range of electronic and automated production equipment solutions to the electronic products sector in the PRC. More importantly, all new products are gradually making profit contributions to the Group since the second quarter of this year.

With the recent improvement in the global economic environment, most countries and economic institutions have revised upward their economic growth forecast for 2004. The PRC will be benefited from this recovery which is driven by the bursting demand of consumers. In anticipation for significant increase in profits and the positive impact of low interest rates, enterprises in the PRC seem likely to increase their investments in production equipment.

In prior years, the business sector maintains a low inventory ratio in view of the uncertain economic prospects. With the economy now picking up momentum, the business sector will speed up their restocking process to cope with the sudden increase in sales volume. In order to follow the market trend closely, the business sector (especially the rapid growing industries such as computers, automobiles, pharmaceuticals and shipping) is in eager demand for sophisticated logistics and transportation systems.

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Sun East Technology (Holdings) Limited

The principal business of the Group is to provide upstream equipment to the electronic industry. The Group will leverage on this advantageous position with an aim to reaping the most benefits from the current revival of the electronic industry, and this will be achieved by the continual improvement of production technologies, accelerating research and development of new technologies and products, and closely following the market trend. With our internal and external advantages, our turnover and profitability will be further enhanced and strengthened, and the Group will enter into a period of rapid growth in the next few years. The management is fully confident with the Group’s prospect, and will strive to bring satisfactory returns to our shareholders.

MANAGEMENT DISCUSSION AND ANALYSIS

Results

For the six months ended 30 September 2003, the Group had turnover of approximately HK$225 million, compared to continuing operations of approximately HK$169 million for the same period of 2002. For the period, the Group recorded net profit from ordinary activities attributable to shareholders of approximately HK$18 million, and a net loss of approximately HK$20 million for the same period of 2002.

Profit during the period is mainly attributed by the increase in turnover and profit margin, and the effective control of cost and expenses.

Printed Circuit Board Assembling Equipment

This operation comprises of the research, development and sales of stencil printer, automatic pick and place machine and soldering equipment. In order to enhance the profitability of this operation, the Group has successfully developed a fully-automated stencil printer, by now the only one manufactured in the PRC, which won the Hong Kong Awards for Industry (Machinery and Equipment Category) in October 2003. As our stencil printers have competitive advantages over the imported machines in terms of pricing and after sale services, demand has already exceeded supply within several months of the product launch.

In the last six months, the electronic industry has shown signs of recovery. The Samsung Pick and Place machine (distributed by the Group) and the soldering equipment (manufactured by the Group) have both achieved satisfactory sales. Moreover, it is expected that the soldering equipment will become one of the major sources of revenue of the Group. Such success is attributable to the following reasons. First, Japan, Europe and the PRC will implement their respective legislations regarding lead-free electronic products on 1st July 2006. Within the coming three years, existing soldering equipment for most electronic products shall be replaced to comply with the legislation. On the other hand, the Group has the largest share in the PRC’s soldering equipment market, while only a few companies in the PRC can master the lead-free technology. Finally, the Group’s lead-free soldering machine is over 30% cheaper than the imported ones. Due to the above reasons, the management will grasp the opportunities provided by this “lead-free” boom to enlarge the market shares of our operation, so as to build up long-term and steady earnings base for the Group.

Automated Logistic Warehouse

Among our new operations, the Group has already secured renowned customers such as Haier, Legend, Gree, Skyworth and Kingboard Chemicals for its automated logistic warehouse. With newly acquired customers like Shanghai Bank Notes Printing Company Limited, Wanji Group Limited and Jiangling Motor Company Limited, it is clear that we have already established a diversified customer base outside the electronics sector, and this will lead to multifolded increase in market potential. The Group expects that annual sales will increase dramatically as compared with last year.

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Sun East Technology (Holdings) Limited

Others

The Group has successfully developed high profit margin electronics production equipment like precision wire bonding equipment. Coupled with the huge domestic and foreign investments committed in the development of semiconductors, the Group is confident that this operation can gain satisfactory results.

Brand name production equipment

During the period, the Group recorded steady growth in sales with turnover amounting to HK$59 million. Profit margin has maintained at last year’s level.

Liquidity

As at 30 September 2003, the Group had net current assets of HK$50 million (31 March 2003: HK$43 million), mainly comprising cash and cash equivalents of approximately HK$50 million (31 March 2003: HK$46 million), prepayments, deposits and other receivables of approximately HK$19 million (31 March 2003: HK$11 million), inventories of approximately HK$66 million (31 March 2003: HK$49 million), and trade receivables of approximately HK$54 million (31 March 2003: HK$57 million) and current liabilities of approximately HK$139 million (31 March 2003: HK$119 million). The current ratio was approximately 1.4 as at 30 September 2003 (31 March 2003: 1.4)

As at 30 September 2003, the Group had total assets of approximately HK$367 million (31 March 2003: HK$349 million) and total liabilities of approximately HK$145 (31 March 2003: HK$144 million). The gearing ratio calculated as a percentage of long-term debt to equity was 1.9% (31 March 2003: 11.4%).

Financial Resources

As at 30 September 2003, the Group had floating interest-bearing bank borrowings of approximately HK$23 million (31 March 2003: HK$28 million), of which HK$19 million were denominated in Renminbi and HK$4 million in Hong Kong dollars. The Group’s bank borrowings are all repayable within five years. As at 30 September 2003, the Group’s borrowings were secured by (i) first legal charges on certain of the Group’s leasehold land and buildings and its investment property located in Hong Kong; (ii) guarantees provided by the Company.

As a significant portion of the Group’s sales and purchases are denominated in Hong Kong dollars and Renminbi, in view of the stability of exchange rate of Hong Kong dollars and Renminbi, the directors consider the Group has no significant exposure to foreign exchange fluctuation. During the Period under review, the Group did not use any financial instrument for hedging purposes and the Group did not have any hedging instrument outstanding as at 30 September 2003.

As at 30 September 2003, cash and bank balances amounted to HK$50 million approximately HK$15 million are denominated in Renminbi and the majority of the remaining balances are denominated in Hong Kong dollars.

Contingent Liabilities

At the balance sheet date, the Group did not have any significant contingent liabilities.

Employees

At 30 September 2003, the Group employed approximately 1,400 staff and workers in the PRC and approximately 50 staff in the Group’s Hong Kong office. The Group’s employees are remunerated in accordance with their work performance, experience and prevailing industry practices. The Group also participates in retirement schemes for its staff in the PRC and Hong Kong.

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Sun East Technology (Holdings) Limited

Interim Dividend

The Board has resolved to pay an interim dividend of HK1.2 cents per share (2002: NIL) for the six months ended 30 September 2003 to shareholders whose names appear on the Register of Members of the Company at the close of business on 30 January 2004. The interim dividend will be paid on or before 10 February 2004.

CLOSURE OF REGISTER OF MEMBERS

The Register of Members of the Company will be closed from Tuesday, 27th January 2004 to Friday, 30th January 2004, both days inclusive, during which period no transfer of shares will be effected.

In order to qualify for interim dividend, all transfers accompanied by the relevant share certificates must be lodged with the Company’s branch Share Registrars in Hong Kong, Tengis Limited at G/F., Bank of East Asia Harbour New Centre, 56 Gloucester Road, Wanchai, Hong Kong, for registration not later than 4:30 p.m. on Monday, 26th January 2004.

PURCHASE, REDEMPTION OR SALE OF LISTED SECURITIES OF THE COMPANY

There was no purchase, sale or redemption of the Company’s listed securities by the Company or any of its subsidiaries during the Period.

AUDIT COMMITTEE

The Company has an audit committee (the “Committee”) which was established in accordance with the requirements of the Code of Best Practice (the “Code”), for the purpose of reviewing and providing supervision over the Group’s financial reporting process and internal controls. The Committee comprises the two independent non-executive directors of the Company. The Group’s interim report for the period ended 30 September 2003 has been reviewed by the Committee. The Committee is of the opinion that these statements comply with the applicable accounting standards, and the Stock Exchange and legal requirements, and that adequate disclosures have been made.

COMPLIANCE WITH THE CODE OF BEST PRACTICE

In the opinion of the directors, the Company has complied with the Code of Best Practice, as set out in Appendix 14 of the Listing Rules, throughout the period, except that the non-executive directors of the Company are not for specific terms as required by paragraph 7 of the Code, but are subject to retirement by rotation in accordance with the Company’s bye-laws.

PUBLICATION OF DETAILED RESULTS ANNOUNCEMENTS ON THE STOCK EXCHANGE’S WEBSITE

A detailed results announcement containing all the information in respect of the Company required by paragraphs 46(1) to 46(6) of Appendix 16 of the Listing Rules will be released on the website of The Stock Exchange of Hong Kong Limited (www.hkex.com.hk) in due course.

For and on behalf of the Board But Tin Fu Chairman

Hong Kong, 19 December 2003

Please also refer to the published version of this announcement in South China Morning Post dated on 22-12-2003.

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