Bonso Electronics International Inc. (NASDAQ:BNSO) stock was a big mover in Thursday trading session after its net income for the full year ended March 31, 2016 more than doubled to highs of $2.87 million. With the stock trading at highs of $2.65 a share it awaits to be seen if it will build up on the recent momentum and close in on its 52-week high of $4.25 a share.
Core Business Weakness
While the full year report was an encouraging one for investors, the same also pointed out underlying challenges that the core business might be facing. A good chunk of the revenue, $1.48 million, to be specific was rental income accrued from the sale of part of the land in use and residential unit. Net sales from the core business of producing electronic products was down by 17.5% from $28.9 million to lows of $23.9 million.
Bonso Electronics has already warned that cost pressure going forward could significantly hurt its profit margins. Increased labor and raw material costs is a point of concern according to chief executive officer Antony So.
“In the coming year, we believe that we will continue to face increasing cost pressure as the result of inflation, increased prices of raw materials and increased labor costs. In addition, we expect that growth in the demand for our products will be limited. We will focus on research and development efforts and cost control initiatives to cope with the challenging environment us face,” said Mr. So.
Bonso needs to find a balance between its operational costs and the amount of money it spends on research and development if it is to prevent a potential slid in earnings going forward. While the recent rally is good news for investors, the company faces an uphill task to hold on to the upward momentum especially on admitting that its core business faces a significant amount of challenges.
Even though Bonso Electronics International Inc.(NASDAQ:BNSO) has rallied by more than 3% since April, it has underperformed the S&P by 27.95% an indication that it still has a long way to go.