Impro Precision (HKG: 1286), one of the world’s top 10 manufacturers of high-precision, high-complexity, mission-critical casting and machined components, reported its 2022 annual financial results. The Company’s sales revenue increased by 15.3% year-on-year to HK$4.355 billion (HK$, same below), which is strong growth in view of last year’s global economic situation.
The areospace, medical and energy, and diversified industrial end markets are the two growth drivers of the Company
Revenue from the areospace, medical and energy end market grew by 53.6% to $516 million, while revenue from the diversified industrial end market grew by 24.5% to $2.139 billion, which are the two growth pillars of the company. Regarding the automotive end market, revenue decreased slightly by -1.4% to $1.70 billion due to a fire incident at the Nantong plant and a shortage of components in Europe due to the Russia-Ukraine conflict. The Company pointed out that it has strategically shifted the production capacity of the passenger car end market to the commercial vehicle end market, including hydrogen vehicles. In fact, revenue from the commercial vehicle end market increased by 18.7% to $896 million, which basically was able to offset the decline in revenue from the passenger car end market.
Net profit attributable to shareholders increased significantly by 52%, gross profit margin and adjusted operating profit margin continued to improve
Net profit attributable to shareholders for 2022 was $582 million, an increase of 52.0% year-over-year, and adjusted net profit attributable to shareholders for 2022 would have totaled $ 649 million, an increase of 53.7% year-over-year, if a provision for one-time loss from the Nantong plant fire incident and amortization relating to past acquisitions were excluded. The Company’s gross profit margin was 29.0%, which was 1.9% higher than 2011 , and adjusted EBITDA operating margin was 28.2%, which was 3.3% higher than last year.
Two successful mergers and acquisitions in 2022 with significant business integration benefits
During a conference on the Company’s earnings, the management pointed out that, while continuing to promote the strategy of “global footprint” and “diversified end-market”, the “twin growth engine” strategy has also been successfully implemented. In 2022, the Company acquired Foshan Ameriforge, which focuses on the aerospace and energy end markets, and Danfoss Jiangsu, which is engaged in the hydraulic end market. Among them, the integration of Foshan Ameriforge has been highly favorable. This plant is expected to nearly double its sales and improve margins this year. Also, the business integration of Danfoss Jiangsu is progressing well with growth to be realized this year, and still stronger earnings growth expected in 2024. The Company will continue to look for new target companies with the objective of driving integration.
Asian markets will be the Company’s third growth pillar
The company said it has seen a rebound in demand from Asian customers from January and February, and could become the Company’s fastest-growing region in 2023. In addition, the consolidated results of the two factories acquired in China and the expected gradual resumption of production at the Nantong plant will also push up the sales performance in Asia. As of February 28, 2023, the Group’s undelivered orders on hand amounted to $3.98 billion, up 6.2% year-on-year.
Although orders on hand rose slightly by 6.2%, the situation should be more satisfactory, mainly due to the different order patterns of the two newly acquired Chinese companies. Their customers have a shorter order cycle in general, which may not be fully reflected in the orders on hand. It is expected that future growth would remain strong.
The Mexico plants will be the Company’s fourth growth pillar
Three plants are in operation at the Group’s Mexico SLP Campus. Of these, the precision machining plant, achieved a good profit in 2022, while the sand casting plant posted a bigger loss last year as it was still in the ramp-up phase. Despite this, the Company will accelerate the completion of the SM building of the sand casting plant from Phase II to Phase I due to a significant increase in orders from North American customers that exceeded original expectations. The investment casting plant, which began operations at the end of November last year, is aiming to reach break-even point this year. The fourth aerospace component plant is expected to complete equipment installation in May or June this year, it will begin trial production and obtain aerospace industry certification by the end of 2023, and start ramping up production next year. The fifth surface treatment plant will mainly serve the aerospace industry. Management expects that all five plants in Mexico will enter the first phase of production this year.
Although the Mexico plants are currently experiencing lower profit margins due to being in the ramp-up phase, the Company is optimistic about their potential growth. With the completion of the infrastructure projects of the Mexico plants by the end of this year, the Group’s capital expenditure is expected to reduce to $400-500 million, which is similar to the Group’s future annual depreciation expenses. While this may put some short-term pressure on the Group’s profit margin, the Mexico plants development effectively reduces geopolitical risk thereby further propelling the expansion of the North American market which will create another growth opportunity in the mid to long term.
Two interim dividend distributions in 2022 with an annualized dividend yield of approximately 5.39%
With the Group’s growth in profit, solid financial position and healthy cash flow in 2022, the Company announced its plan to distribute dividends at a rate of approximately 46% of the adjusted earnings per share. The second 2022 interim dividend is 8.0 HK cents per share, and the dividend for the year amounted to 16.0 HK cents per share, showing a remarkable increase of 58.4% compared with the previous year. Based on the share price on the day of the results announcement, the annualized dividend yield is approximately 5.39%. Like other Hong Kong blue-chip companies practice, the Company has been distributing interim dividends twice a year since 2021. This practice allows for the distribution of dividends in a faster manner, providing shareholders with an early return on their investment.