Hopes of a profit surge in 2H13 fade for tech companies

Dream on, said analyst.

According to OCBC, under their tech sector coverage, only Venture Corp (VMS) managed to report earnings which exceeded our expectations for the recently concluded 4QCY12 results season.

Karin Tech’s core PATMI was in line, while that of ECS Holdings and Valuetronics Holdings missed. "For some of the tech companies we are tracking, a noteworthy trend was that bottomline performance turned out to be relatively weaker than topline," OCBC said.

Here's more from OCBC:

We believe this highlights the apparent cost pressures present in the sector, resulting in margins erosion and weaker profitability.

Tech companies we spoke to have largely continued to paint a muted near-term outlook as key customers have maintained a cautionary stance on orders, with preference for lean inventory levels given the still precarious macroeconomic environment.

Nevertheless, most of these companies have also displayed optimism on rosier conditions in 2H13 vis-à-vis 1H13. This would be underpinned by an uptick in the global economy and contribution from the mass production of new programmes.

However, we maintain our NEUTRAL view on the tech sector, given the continued backdrop of political and economic uncertainties. VMS remains our top pick within this space, despite it lowering its dividends, given the aforementioned explanation.

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