Highway Holdings Limited — FY2023 Form 20-F Summary
Reporting period: Fiscal year ended March 31, 2023, with comparison to fiscal 2022. This is an annual report, not a report for calendar-year 2022 Q4. Financial amounts below are in U.S. dollars; unless stated otherwise, amounts are in millions.
Business context
Highway Holdings manufactures metal, plastic, electrical and electronic components and assemblies for original equipment manufacturers. Its Shenzhen, China facility primarily handles engineering, tooling and automated production; labor-intensive manufacturing is concentrated in Yangon, Myanmar through an 84%-owned subsidiary. Europe remained the largest customer region.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $10.242 million | $12.365 million |
| Gross profit / margin | $3.141 million / 30.7% | $3.770 million / 30.5% |
| Operating income (loss) | ($0.477 million) | $0.567 million |
| Net income (loss) attributable to shareholders | ($0.294 million); $(0.07) per share | $0.443 million; $0.11 per share |
| Operating cash flow | $0.809 million | ($0.164 million) |
| Cash and cash equivalents at year-end | $6.952 million | $6.010 million |
| Working capital | $6.599 million; current ratio 2.62 | $7.140 million |
Revenue fell 17.2%. Gross margin edged up, but lower sales and higher selling, general and administrative expenses drove an operating loss. SG&A rose 13.0% to $3.618 million, including inflation-related costs and a credit-loss allowance for a U.S. customer. The $503,000 FY2023 expected-credit-loss expense contributed to a $554,000 year-end receivables allowance, versus $51,000 a year earlier.
FY2023 operating cash flow benefited in part from a $794,000 inventory reduction and non-cash credit-loss and inventory charges. Investing cash flow was $0.991 million, mainly reflecting maturity of time deposits; financing cash outflow was $0.920 million, including $1.019 million in dividends paid. The company reported no bank loans and no bank credit facilities. Year-end operating lease liabilities totaled $2.055 million; these are lease obligations, not bank borrowings.
Changes and notable items
- Revenue declined from FY2022’s 34.9% growth, reflecting weaker European demand for household products after pandemic restrictions eased and production disruption in Shenzhen after COVID-19 infections and employee absenteeism.
- Metal stamping and mechanical OEM sales increased to 65.0% of revenue from 58.3%; electric OEM sales decreased to 35.0% from 41.7%.
- European customers generated 80.7% of revenue, up from 70.9%; North America fell to 4.3% from 11.5%. Four customers represented 94.8% of FY2023 revenue, compared with 76.6% for the three largest customers in FY2022.
- Myanmar operations generated 42% of revenue, down from 47%. One large European customer no longer accepts products made at the Yangon facility, citing supply-chain human-rights requirements.
- The company recorded a $32,000 currency gain, versus a $24,000 loss in FY2022, and a $20,000 income-tax benefit, versus $101,000 of tax expense.
- FY2023 dividends totaled $0.20 per share. A further $0.10 per share dividend was paid in July 2023; future payments remain discretionary.
Outlook, risks and controls
Management said available working capital and operating cash generation should support operations for at least the next 12 months. The filing provides no quantified revenue or earnings guidance. Management is pursuing automation in Shenzhen, lower-cost Myanmar manufacturing, and development of proprietary electric motors; one motor was being sold to an existing customer, while other products remained in development.
Major risks include political instability and currency weakness in Myanmar; customers restricting production there in response to human-rights due-diligence requirements; rising labor, regulatory and operating costs in China; customer and receivables concentration; supply-chain, shipping and inflation pressures; and foreign-exchange volatility. The company does not hedge currency risk. It also highlighted a $1 million credit facility for a newer U.S. customer: $737,000 had been drawn at year-end and was included in receivables, with a $263,000 undrawn exposure. The customer fully settled the outstanding balance on July 6, 2023, according to the filing.
Management concluded that disclosure controls and internal control over financial reporting were ineffective at March 31, 2023, identifying material weaknesses in Myanmar cash controls, accounting staffing and transaction-accounting procedures. Remediation efforts were underway but had not yet resolved the weaknesses. ARK Pro CPA & Co issued an unqualified opinion on the FY2023 financial statements; the auditor did not provide an opinion on internal-control effectiveness. The auditor changed from Centurion ZD CPA & Co to ARK in May 2023.
Important facts for investors to verify
- Whether revenue and orders recover, particularly in Europe, and whether customer concentration remains elevated.
- Collection and credit quality for major customers, including whether any new or extended credit arrangements create renewed exposure.
- Whether Myanmar customers continue to permit production there and whether political, banking, labor or currency conditions disrupt operations.
- Progress in remediating the disclosed internal-control material weaknesses and any subsequent auditor or filing developments.
- Cash availability for dividends, lease commitments and unexpected expenses, given the lack of bank borrowing facilities.
- The assumptions supporting management’s long-lived-asset recoverability assessment; impairment testing was identified as a critical audit matter, although no impairment was recorded.