20220719-招银国际-FIT_HON_TENG-06088.HK-3+3_Strategy_starts_to_bear_fruit__Raise_TP_to_HK_1.78_6页_1mb

FIT Hon Teng (6088 HK) Summary

Core Content

FIT Hon Teng (6088 HK) is a company that is currently under analysis by CMB International Global Markets Limited (CMBIGM). The report highlights the company's strong performance in the first half of 2022 (1H22), with a positive profit alert and solid execution of the "3+3 Strategy" in the second half of 2022. The company's management has shown confidence in the strategy's ability to drive growth, expecting the "3+3" revenue mix to reach 31% in 2023, up from 16% in 2021.

The report also discusses the potential impact of new EU regulations mandating USB Type-C charging for phones, which could boost demand for Type-C sockets and cables. Additionally, the report notes the company's positive performance in key segments such as EV, 5G AIoT, and Audio, with expectations of continued growth in FY23 and FY24.

Main Points

• 3+3 Strategy: The core growth strategy includes EV, 5G AIoT, and Audio, with management projecting a 31% revenue mix by 2023.
• Positive Profit Alert: FIT's 1H22 net profit is expected to reach US$80-90mn, representing a 100% YoY increase, driven by strong recovery from the pandemic, better product mix, and forex gains.
• Earnings Revisions: CMBIGM has revised its FY22-24E EPS upwards by 15-16%, reflecting a 1H22 beat and stronger 2H22E performance.
• Valuation: The stock currently trades at a distressed valuation of 7.3x/6.4x FY22E/23E P/E, which is significantly below the 10x FY21E P/E used to set the new target price (TP) of HK$1.78, representing a 37% upside from the current price of HK$1.30.
• Catalysts: Upcoming catalysts include new product launches from Belkin and EV segments, M&A activities, and margin improvements.

Key Information

• Target Price: HK$1.78 (37% upside)
• Current Price: HK$1.30
• Market Cap: HK$9,447 million
• Shareholding Structure:
  • Foxconn Far East Ltd: 71.27%
  • Lu Sung-Ching: 5.75%
• EPS Growth: Estimated 15-16% increase in FY22-24E EPS
• Revenue Growth:
  • FY22E: 4.0%
  • FY23E: 9.3%
  • FY24E: 10.3%
• Net Profit Growth:
  • FY22E: 12.0%
  • FY23E: 14.8%
  • FY24E: 17.0%
• P/E Ratio:
  • FY22E: 7.3x
  • FY23E: 6.4x
• P/B Ratio: 0.4x
• ROE:
  • FY22E: 6.1%
  • FY23E: 6.7%
  • FY24E: 7.3%

Analyst Ratings

• CMBIGM Rating: BUY
• Industry Rating: OUTPERFORM
• CMBIGM Ratings:
  • BUY: Potential return of over 15% over next 12 months
  • HOLD: Potential return of +15% to -10%
  • SELL: Potential loss of over 10%
  • NOT RATED: Not rated

Risk & Reward

The report emphasizes that the risk-reward profile remains attractive, with the stock trading at a significantly lower P/E ratio than historical averages. The analyst believes that the upcoming catalysts will contribute to the stock's performance and recommends maintaining the BUY rating.

Financial Summary

• Revenue:
  • FY20: US$4,315 million
  • FY21: US$4,490 million
  • FY22E: US$4,672 million
  • FY23E: US$5,108 million
  • FY24E: US$5,635 million
• Net Profit:
  • FY20: US$43 million
  • FY21: US$138 million
  • FY22E: US$154 million
  • FY23E: US$177 million
  • FY24E: US$207 million
• EPS:
  • FY20: 0.64 USD cents
  • FY21: 2.04 USD cents
  • FY22E: 2.28 USD cents
  • FY23E: 2.62 USD cents
  • FY24E: 3.07 USD cents
• Gross Margin:
  • FY22E: 15.1%
  • FY23E: 15.5%
  • FY24E: 15.7%
• Operating Margin:
  • FY22E: 4.0%
  • FY23E: 4.2%
  • FY24E: 4.4%
• Net Margin:
  • FY22E: 3.3%
  • FY23E: 3.5%
  • FY24E: 3.7%

Valuation Comparison

• Peer Valuation:
  • TE (TEL US): 16.3x FY21 P/E, 15.1x FY22E P/E
  • Amphenol (APH US): 23.7x FY21 P/E, 22.4x FY22E P/E
  • Fabrinet (FN US): 13.9x FY21 P/E, 12.8x FY22E P/E
  • Luxshare (002475 CH): 23.2x FY21 P/E, 17.5x FY22E P/E
  • CMBIGM estimates show that FIT Hon Teng is significantly undervalued compared to its peers.

Conclusion

The report concludes that FIT Hon Teng is a strong buy, with the target price of HK$1.78 reflecting the analyst's confidence in the company's ability to execute its "3+3 Strategy" and benefit from new EU regulations and product launches. The stock is trading at a distressed valuation, which the analyst believes presents a compelling opportunity for investors.