【行业研究报告】东江集团控股-1H23 weakness amid industry headwinds; Positive on margin recovery in 2H23／FY24E

1Sep2023
CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdate
TKGroup(2283HK)
1H23weaknessamidindustryheadwinds;
Positiveonmarginrecoveryin2H23/FY24E
TKposted1H23revenue/NPdeclineof12%/6%YoY,mainlyduetodemand
weaknessacrosssegments(exceptautomotive),partlyoffsetbyimprovedGPM
to23.3%(vs.18.7%in1H22)oneasingcostpressureandenhancedefficiency.
Lookingahead,mgmt.ispositiveonnewclientorders,capacityramp-upin
Shenzhen/Vietnam/Huizhouplantsandbusinessopportunitiesinautomotive/
medicaldevice/e-cigarette.Followingaweak2023,weexpectnetprofittogrow
33%/16%YoYinFY24/25E,backedbyorderwinsfromVR/e-cigarette/medical
device,GPMrecoveryandbettercostcontrol.WeadjustedTPtoHK$3.09
basedonsame8.2xFY24EP/E.Tradingat3.5xFY24EP/Ewith17%FY22-
25EEPSCAGRand9%dividendyield,wethinkthestockisattractive.Maintain
BUY.
1H23weaknesswellexpecteddraggedbyweakconsumerelectronics
/communicationsdemand.1H23revenue/netincomedropped11.7%/
/communicationsdemand.1H23revenue/netincomedropped11.7%/
6.4%YoY,largelyin-linewithearlierguidance.Bysegment,1)mobile&
wearable(Apple,Otterbox,Jabra)dropped24%YoY,2)communications
(Polycom)dropped31%YoY,3)smarthome(Google,Amazon)dropped
39%YoY,4)medicaldevicedropped18%YoY,5)automobilesegment
grew21%YoY,and6)otherproductssegmentrevenuegrew41%YoY
drivenby93%YoYgrowthofe-cigaretteproduct.Projects-on-handin1H23
amountedtoHK$858.1mn(+5%YoY).Weaknessincommunicationswas
mainlyduetoproductcall-backofkeycustomer,whileautomotivesegment
benefitedfromeasingshortageofautomotivesupplychain.
2H23/2024Outlook:earningsgrowthsettoresumebackedbyorder
wins,capacityramp-upandcostcontrol.Backedbyneworderwinsin
VR/medicaldevice/e-cigarette/automotive,weexpectTKtoenjoyutilization
recoveryin2H23/FY24EforitsHuizhou&Vietnamplants.TKimplemented
strictercostcontrolmeasuresinFY22/23,resultinginimprovingoperating
efficiencyandcostsavings.WeexpectTK’srevenue/netprofittopost-9%
/+7%YoYbackedbyhigherGPMof25.4%in2H23E(vs23.3%in1H23).
TKmaintainedhighinterimdividendpayoutratioat42.7%in1H23.
Attractivevaluationat3.5xFY24EP/Eand9%yield;MaintainBuy.We
adjustedourTPtoHK$3.09basedonrollovered8.2xFY24EP/E,in-line
with5-yearhistoricalforwardP/E.Tradingat3.5xFY24EP/E,wethinkthe
stockisattractiveconsidering9%yield.MaintainBUY.Catalystsinclude
Meta/Google/Amazonproductlaunches,orderramp-upofmedical
device/e-cigarettecustomersandmarginrecoveryin2H23/FY24E.