Shenzhen-based Deren Electronics latest 2013 financial results fell short of market expectations, according to a report by China International Capital Corporation Limited (CICC).

The company reported stockholders net profit was up YoY of 22.9 percent to RMB 125 million (US$), which fell short of market projections of 48.9 percent and previous estimations of 39.7 percent revenue growth.

Although, the company’s revenue in 2013 exceeded expectations, so did costs. The company’s sales also grew much slower than revenue. In 2013, Deren Electronics annual revenue grew 31.4 percent to RMB 2.04 billion compared to a year before, which exceeded market expectation of 24.2 percent. Operating profit was up 18.2% YoY to RMB 131 million, while profit before tax increased 20.2 percent to RMB 148 million. However, net profit growth was only 22.9 percent, mainly due to rising costs, especially during 4Q13 where costs upticks were most obvious. 

The company’s financing and sales cost soared in 4Q13. Despite revenue growth of QoQ 24 percent in 4Q13, operating costs and expenses increased QoQ 30 percent to RMB 6.21 billion. Possible reasons include:

1. The company’s operating capital demands increased in 4Q13, and the company took on more short term loans, which boosted financing costs.
2. The company is also expanding oversea markets and investing in distribution channels, which in turn increased sales expenses.
3. In addition, the company raised employee stock option (ESO) to RMB 8.32 million and expanded R&D, which contributed to rising management costs.

LED Continues High Growth Rate

LED continues to be the company’s highlight and has soared. The company has expanded LED production capacity, but it still accounts for less than 10 percent of company revenue. The LED business is to benefit from the rebounding industry in 2014, and push revenue up to above 10 percent.