Tongda Group (0698 HK)

Transcription

1 Equity Research Tech, Media & Telecom 20 Jan 2015 Tongda Group (0698 HK) Overcoming challenges Forecast revised up with stronger-than-expected client performance: In previous note, we expressed concern on handset capacity constraint and notebook client shrinkage 2H14E. Based on recent conversation with management, key clients Huawei and Xiaomi placed delightful orders for more premium products, and new capacity was well utilized. While we worried about Sony exit, it turns out demand elsewhere absorb shock. For instance, Tongda receive strong orders from Lenovo for notebook pieces A+B+C+D. Numbers are revised-up accordingly. Vendors adopted LDS, yet sales of models were not strong enough: With gradual adoption of LDS among Chinese vendors, we previously expected LDS shipment to be 10m-15m sets for 2014E. Possibly with below 5m sets LDS actual shipment, it represented less than 10% of handset sales for 2014E. For instance, Huawei Ascend G750 and Ascend G660 are carrying Tongda LDS antenna, but they are not top selling models. We delay our LDS adoption schedule for the next years. Outlook 2015 with capacity expansion & metal casing diversification: Heading into 2015E, we believe Tongda is to further expand to 70m nameplate capacity for handset by year end. On the other hand, Tongda is to supply a larger amount of metal casings, up from current 10% of handset shipment. Huawei introduced of Honor 6 and Ascend Mate 7 in 2H 2014 with metal casing / metal frame; Tongda is to further double its 500 CNC machines in 2015E to service the demand. Buy (up from Accumulate) Target price: HK$1.40 (HK$1.30) Share price: HK$0.94 Bloomberg Ticker: 698 HK Reuters: 698.HK Key change Net profit (HK$m) New est. Prev est. 2014E E E Upgrade to Buy with recent stock price correction, new TP HK$1.40: Tongda showed us better than expected execution in capacity ramp-up and client mix shift. Stock price stabilized at HK$0.77, and we believe our investment theory is still intact. Upgrade to Buy from Accumulate; new TP is HK$1.40, representing 12.9x and 10.8x P/E for 2015E/2016E. HK$m (Yr-end Dec) 2014E 2015E 2016E Revenue 4, , ,547.8 % of growth 27.6% 21.0% 16.9% Core earnings % of growth 30.7% 26.0% 20.0% Core EPS (HK$) % of growth 17.1% 26.0% 20.0% P/E (x) P/B (x) Dividend Yield 3.2% 4.0% 4.8% ROE 13.2% 14.9% 15.8% Kevin Mak, CFA Analyst kevin.mak@dfzq.com.hk

2 Table 1. Selected figures for 2012A-2016E Yr-end Dec (HK$m) 2012A 2013A 2014E 2015E 2016E Handset revenue 1, , , , ,391.3 Electrical appliances revenue Notebook computers revenue Other revenue Total revenue 3, , , , ,547.8 Gross profit , , ,552.2 Net profit Gross margin 21.4% 22.0% 23.1% 23.5% 23.7% Net margin 8.8% 9.9% 10.2% 10.6% 10.9% ROE 13.7% 14.1% 13.2% 14.9% 15.8% ROA 7.1% 7.7% 7.7% 8.6% 9.1% Table 2. Histroical interim results 1H 2013A-2H 2014E Yr-end Dec (HK$m) 1H 2013A 2H 2013A 1H 2014A 2H 2014E 2014E Total revenue 1, , , , ,628.3 Cost of sales (1,334.0) (1,495.0) (1,618.6) (1,940.0) (3,558.6) Gross profit ,069.8 Selling and distribution expenses (39.7) (38.8) (42.9) (56.6) (99.5) Administrative expenses (128.6) (149.2) (177.2) (169.9) (347.1) Other net operating expenses (5.3) (16.0) 0.2 (10.2) (10.0) EBIT Depreciation (77.2) (75.7) (84.0) (105.7) (189.7) Amortization (1.2) (1.2) (1.2) (1.4) (2.6) EBITDA Finance costs (21.4) (30.5) (27.3) (22.1) (49.4) Share of profit of an associate (0.0) (0.1) (0.0) Other income and net gains EBT Income tax (37.2) (8.9) (47.5) (41.5) (89.1) Total profit Net profit Minority interest Table 3. Shareholders Shareholder % holding Chairman Wang Ya Nan and brothers 47.57% Public and others 52.43% Total 100% Source: Orient Securities 2 / 6

3 Table 4. Valuation matrix at current price and target price Yr-end Dec (HK$m) 2014E 2015E (Current) P/E P/B EV/EBITDA Dividend yield 2.6% 3.2% (TP) P/E P/B EV/EBITDA Dividend yield 1.8% 2.2% 2.7% Table 5. P&L forecast Year-end Dec (HK$m) 2011A 2012A 2013A 2014E 2015E 2016E Handset 1, , , , , ,391.3 Electrical appliances Notebook computers Ironware parts Communication facilities and others Total revenue 3, , , , , ,547.8 Cost of sales (2,541.8) (2,677.4) (2,829.1) (3,558.6) (4,282.0) (4,995.5) Gross profit , , ,552.2 Selling and distribution expenses (70.4) (81.9) (78.5) (99.5) (120.4) (140.8) Administrative expenses (172.1) (210.6) (277.8) (347.1) (420.0) (491.1) Other net operating expenses (14.5) (9.0) (21.2) (10.0) (10.0) (10.0) EBIT Depreciation (119.9) (136.0) (152.9) (189.7) (219.5) (249.4) Amortization (2.2) (2.4) (2.5) (2.6) (2.8) (3.0) EBITDA ,162.8 Finance costs (53.3) (49.0) (51.9) (49.4) (49.8) (49.6) Share of profit of an associate (0.1) Other income and net gains EBT Income tax (77.4) (67.4) (46.1) (89.1) (112.2) (133.6) Total profit Net profit Minority interest EPS (HK$) DPS (HK$) Source: Orient Securities 3 / 6

4 Table 6. Balance sheet forecast Year-end Dec (HK$m) 2011A 2012A 2013A 2014E 2015E 2016E Non-current assets 1, , , , , ,912.6 Property, plant and equipment 1, , , , , ,710.6 Prepaid land lease payments Investment property Goodwill Available-for-sale-investment Prepayments Investment in associates Long term deposits Deferred tax assets Current assets 2, , , , , ,890.8 Inventories , , , ,958.3 Trade and bills receivables 1, , , , , ,861.4 Prepayments, deposits & other receivables Amount due from related companies Income tax recoverable Pledged deposits Restricted bank balance Cash and cash equivalents Non-current liabilities Interest-bearing bank borrowings Loan from MI of sub Deferred tax liabilities Current liabilities 1, , , , , ,999.0 Trade and bills payables , , , ,873.3 Accrued liabilities and other payables Due to non-controlling shareholders of sub Due to a related company Tax payable Interest-bearing bank and other borrowings Total equity 1, , , , , ,497.5 Issued capital Reserves 1, , , , , ,225.7 MI Source: Orient Securities 4 / 6

5 Analyst Certification I, Kevin Mak (Mak Tsz Hang), being the person primarily responsible for the content of this research report, in whole or in part, hereby certify that: (1) all of the views expressed in this report accurately reflect my personal view about the subject company(ies) and its (or their) securities; (2) no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report, or our Investment Banking Department; (3) I am not, directly or indirectly, supervised by or reporting to our Investment Banking Department; (4) the subject company(ies) do(es) not fall into the restriction of the quiet period as defined in paragraph 16.5(g) of SFC Code of Conduct; (5) I and my associates do not deal in or trade in the stock(s) covered in this report within 30 calendar days prior to the date of issue of the report; (6) I and my associates do not serve as an officer(s) of the listed company(ies) covered in this report; and (7) I and my associates have no financial interests in relation to the listed company (ies) covered in this report. Meanings of Orient Securities Ratings Buy Describes stocks that we expect to provide a total return of >10% within a 12-month period. Accumulate Describes stocks that we expect to provide a total return of >0% within a 12-month period. Hold Describes stocks that we expect to provide a total return of between -20% and +20% within a 12-month period. Sell Describes stocks that we expect to provide a total return of <0% within a 12-month period. Disclosure & Disclaimer Orient Securities (Hong Kong) Limited does and seeks to do business with the company or companies covered in this report. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Orient Securities (Hong Kong) Limited and its affiliates, officers, directors, and employees may from time to time have long or short positions in securities, warrants, futures, options, derivatives or other financial instruments referred to in this report. In no event will Orient Securities (Hong Kong) Limited or any other member of Orient Securities (Hong Kong) Limited be liable or responsible for loss of any kind, whether direct, indirect, consequential or incidental, resulting from the act or omission of any third party occurring in reliance upon the contents of this report. Any information provided in this research report is for information purpose only and have no regards to the investment objectives, financial situation or risk tolerance level of any specific recipient and does not constitute any solicitation or any offer to buy or sell any securities or any other financial instruments. Before entering into any investment contract, individual should exercise judgment or seek for professional advice when necessary. Orient Securities (Hong Kong) Limited may not execute transactions for individual(s) in the securities/instruments mentioned. 5 / 6

6 Although the information in this report is obtained or complied from sources that Orient Securities (Hong Kong) Limited believes to be reliable, no representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the materials contained in this report. All price-related information is indicative only, and value of the investment(s) referred to in this report and the income from them may fluctuate because of changes in foreign exchange rates, market indexes, relevant operational / financial conditions of the company and other factors. Information contained in this report may change at any time and Orient Securities (Hong Kong) Limited gives no undertaking to provide notice of any such change. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to any law, regulation, rule or other registration or licensing requirement. Investment(s) in securities / financial instructions put through/execute outside Hong Kong are subject to the applicable laws and regulations of the relevant overseas jurisdiction, the entity issuing this research report and the analyst(s) authoring this research report are not subject to all the disclosures and other regulatory requirements in other countries. This report may not be copied, reproduced, distributed, redistribute or published by any person for any purpose without the prior written consent of Orient Securities (Hong Kong) Limited. All rights are reserved. 6 / 6