We refer to the above article that appeared in New Straits Times on 27 September 2016, with particular reference to the statement in the 1st paragraph reproduced as follows:“Another wave of retrenchments has apparently hit Penang’s manufacturing sector, with a sudden announcement to over 200 employees that they are out of jobs.”We wish to clarify that the above measures undertaken by TS Solartech Sdn Bhd, a 50.69% owned subsidiary of Tek Seng Holdings Berhad (“Tek Seng” or “the Company”) is to optimize manpower to enhance productivity efficiency and to reduce its operating cost over the longer term.The cost saving measures will not have any operational impact on TS Solartech Sdn Bhd or the Group. TS Solartech Sdn Bhd still has sufficient manpower of around 500 employees to fulfill the operation lines and is operating as usual in Penang Science Park. The Management of TS Solartech Sdn Bhd had resolved the issue by compensating monetarily. Despite that, the financial impact of manpower retrenchment is minimal.
The last line- the financial impact of manpower retrenchment is minimal - raised the question: How minimal is that? Does the management expect the company to still have a satisfactory performance this year?
From the chart below, we can see that the solar segment - Tekseng's most profitable - had suffered a drop in PBT from RM20 million in QE31//3/2016 to RM13 million in QE30/6/2016. Its contribution to overall revenue had also declined from 68% to 63%. The drop in revenue & profit could be a developing negative trend which prompted the drastic action to retrench 200 workers.
Chart 1: Tekseng's segmental results for QE30/6/2016, QE31/3/2016 & QE30/6/2015
Chartwise, Tekseng is now enjoying a tepid rebound from the announcement. I don't think the rebound will go far. At best, it may touch RM1.10. In any event, I seriously doubt it can surpass the horizontal line at RM1.15.
Chart 2: Tekseng's 120-min intra-day chart as at Sep 30, 2016_11.20am (Source: Shareinvestor.com)
Based on the uncertain prospects of the Solar segment, I recommend to avoid Tekseng.
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