Hana Says 2012 Growth Doubtful on Demand Slump: Southeast Asia

Hana Microelectronics Pcl (HANA), a maker of parts for companies including Apple Inc., said any increase in sales would represent an “achievement,” as cooling global demand threatens the company’s recovery from Thailand’s floods.

“We might see some growth, but it won’t be much,” Chief Executive Officer Richard Han, 55, said in an interview on Aug. 17. “If we grow at all, it will be an achievement.”

Hana’s factory in Ayutthaya was among thousands shuttered when floodwaters spread across 65 of Thailand’s 77 provinces in the fourth quarter of last year, slashing output of parts for devices including Research in Motion Ltd. (RIM)’s BlackBerry. The company’s production is recovering just as Europe’s debt crisis and slower Chinese economic expansion threaten to stall growth in Asia’s export-oriented economies, Han said.

“The export outlook in the second half is very bleak because of global economic uncertainties,” Thanomsri Fongarunrung, an economist at Phatra Securities Pcl in Bangkok, said by phone. “There is a chance the global economy may deteriorate further and the supply shortage after the floods, which helped support exports earlier, will fade.”

Some of Hana’s customers have delayed orders because of uncertainty over the outlook for demand, Han said, declining to name them. Hana’s Ayutthaya factory is operating at 60 percent of capacity, and may return to pre-flood production levels next year depending on the volume of orders, he said.

“It’s about the confidence of customers,” he said. “It’s also important that the government show to the world that you can have confidence in this area that it won’t be flooded again, even if you have a big rain.”

Infrastructure Spending

Prime Minister Yingluck Shinawatra has pledged to spend more than 2 trillion baht ($63.5 billion) on infrastructure and water-management projects over the next seven years to boost growth and prevent a repeat of the disaster, which killed more than 700 people and cost the economy 1.4 trillion baht.

Hana’s Ayutthaya plant closed on Oct. 7 as floodwaters threatened to swamp the Hi-Tech Industrial Estate in Ayutthaya province, 78 kilometers (48 miles) north of Bangkok. The deluge later forced the closure of six other industrial estates, crippling supply chains of companies including Honda Motor Co., Toshiba Corp. (6502) and Western Digital Corp. (WDC)

The disruption contributed to a 3.8 percent decline in Hana’s sales and a 41 percent slump in net income last year. Profit fell 16 percent in the second quarter from a year earlier, as sales increased by 8 percent, Hana said Aug. 9.

Hana shares have gained 11 percent this year, compared with a 19 percent gain for Thailand’s benchmark SET Index.

China, Myanmar

Hana’s Ayutthaya plant contributed 34 percent of total revenue in the third quarter of last year. That figure fell to 14 percent in the flood-affected fourth-quarter. Hana operates three factories in Thailand, two in Jiaxing in China and one in Ohio, according to regulatory filings.

The company will build a new plant in either Cambodia or Myanmar to take advantage of labor costs that are as much as 60 percent less than in Thailand, Han said. A location will be chosen by the end of the year and construction may start in 2014, he said, adding that the plant will employ as many as 5,000 people.

“We think Cambodia may be a better bet, but we haven’t made the decision yet,” he said. “Myanmar has opened up recently, but there are still a lot of uncertainties.”

Myanmar’s shift toward democracy since a 2010 election ended five decades of direct military rule prompted the U.S. and European Union to ease sanctions, encouraging companies including Coca-Cola Co., Unilever and General Electric Co. to invest in the country of 64 million people that borders China and India.

“Myanmar needs improvement on power, logistics and telecommunications, which are unreliable, slow and expensive,” Han said. “Government stability is still unproven and changing fast, so it’s still risky.”

To contact the reporter on this story: Suttinee Yuvejwattana in Bangkok at suttinee1@bloomberg.net

To contact the editors responsible for this story: Tony Jordan at tjordan3@bloomberg.net; Lars Klemming at lklemming@bloomberg.net

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