Tonly Electronics Announces 2020 Interim Results

During the period under review, the Group recorded a turnover of approximately HK$3,141.3 million, representing a decrease of 10.7% compared with the corresponding period last year, which was because the Group's primary market is in Europe and the US where the sales volume declined as a result of the novel coronavirus ( ''COVID-19'') pandemic, leading to a substantial decrease in orders from overseas customers. Gross profit during the period under review amounted to approximately HK$392.6 million, representing a decrease of 14.1% as compared to the corresponding period last year, primarily due to the reduction in the Group's production efficiency caused by failure of the Group to resume work and production after the Spring Festival Holidays as a result of the pandemic, delayed work resumption of employees and material supply, and imbalanced production. Operating profit and net profit for the period amounted to approximately HK$91.1 million and HK$70.4 million, respectively, representing a year-on-year decrease of 31.5% and 28.7%, respectively. Profit attributable to the owners of the parent company of the Group decreased year-on-year by 30.5% to HK$68.3 million.

During the period under review, the Group endeavoured to develop smart speaker, true wireless stereo (TWS) earphone product and ancillary product businesses. The pandemic's impact on the global smart audio products has been relatively smaller, resulting in a moderate growth in the Group's smart audio speaker business. Meanwhile, the new audio business decreased mainly because the overseas market declined as a result of the pandemic while the Bluetooth speaker market was in decline due to the impact of smart speakers. In particular, orders from key European and US customers of the Group decreased significantly during the first half of the year, with the overall sales revenue with a key customer of the Group decreasing over 30% in the first half of the year. In terms of TWS earphone, the Group has just entered this market, and the number of customers for this product is still small and its competitiveness is low. Shipment volume of TWS earphones remained low. Wireless products is a new product category newly explored by the Group last year. Currently, the product is still at the preliminary exploration and investment stage. As the Group started late in developing this product, its profitability is not high and its future prospects are beset by uncertainties.  But the category has already been contributing to the Group's turnover, recording turnover of HK$85.4 million in the first half of the year. Benefitting from the growth of ancillary product business supplementary to the parts and components of TV, turnover of the ancillary product business increased by 12.7% year-on-year to HK$343.7 million.

During the period under review, the Group's R&D expenses amounted to HK$134.5 million, accounting for 4.3% of its total revenue. The Group has its own R&D bases in Huizhou, Shenzhen and Xi'an in the PRC. To facilitate the development of the wireless product business, it has also set up a R&D base in Wuhan, the PRC. At the same time, the Group mainly invested in the development of smart products epitomised by smart voice speakers and has gradually established the development capability for ancillary products which are ancillary to the smart products. The Group also continued to invest R&D resources to develop TWS earphone products and entered the market of wireless products. The Group has been building its technical capabilities since last year to narrow the gap with first-tier TWS earphone companies and gradually increase the sales volume and market share of the Group's TWS earphones.

Looking ahead, as the room for development in the smart voice speakers market has contracted, and due to the adjustments in the supply chain management strategies by main customers, the growth of the Group's smart voice speakers may be subject to a certain degree of pressure in the future. In addition, due to the restrictions by the U.S. on chip supply from certain PRC enterprises, the Group is required to switch chip platform for some of its products in the future, which may lead to new R&D investments and longer R&D cycle for products.

Although the COVID-19 pandemic continues, the situation has eased as compared with the first half of the year. However, the pandemic still poses negative impacts on the Group for it to complete its target for the year. But a part of the Group's order amount has gradually begun to recover since May 2020, and its cash flow will support the recovery and development of the Group's business. Despite challenges to the Group's operations posed by the pandemic in the first half of the year, the Group will strive for a recovery of the overall business in the second half of the year, as compared with the results in the first half of the year.