20230911-招银国际-通达集团-00698.HK-Positive_on_Android_recovery,_Apple_share_gain_and_non-smartphone_biz_order_wins_7页_1mb

SUMMARY OF ANALYST REPORT ON TONGDA (698 HK)

Date of Report: September 11, 2023

Company Overview:
Tongda, a Hong Kong-listed company (stock code 698 HK), focuses on smartphone casings and other products. The report covers financial performance, outlook, and valuation based on CMB International Global Markets analysis.

Key Financial Highlights from 1H2023:

• Revenue declined by 29.9% YoY due to inventory corrections in smartphone and other segments, missing consensus estimates by 10%.
• Gross profit margin (GPM) improved 2.4 percentage points YoY to 20.3%, driven by better product mix and operating efficiency.
• Despite net profit declining 44.5% YoY due to an one-off loss from disposed business, EBITDA margin rose to 20.1% YoY.

2H2023 Outlook:

• Positive for TQ Android smartphone business, expected recovery with steady average selling prices (ASP) from inventory restocking and new model launches.
• Apple business will drive ASP/share gains in H2023 due to iPhone 15 casing material upgrades (metal to aluminum/titanium). Apple is now the largest client, accounting for 37% of estimated FY2023 sales.
• Non-smartphone orders from clients like IKEA and Decathlon are expected to boost household/sports goods revenue by up to 10% in H2023.
• Network communications business projected for 30%+ revenue growth from new order wins.

Valuation and Recommendation:

• Maintain BUY rating with a revised target price (TP) of HK$0.17, representing a 111.3% upside from the current price.
• Valuation based on a rolled-over 6.0x FY2024 earnings (E) price-to-earnings (P/E) ratio. Current P/E ratios of 4.4x (FY2023) and 2.8x (FY2024), respectively, are at a 10-year low and deemed extremely attractive.
• Catalysts include Apple’s product launches, margin recovery, and broader business expansions.

Overall Impression:
The analysis highlights potential for recovery in the second half of 2023, driven by diversification into higher-margin opportunities and Apple integration, despite first-half challenges.