20210204-招银国际-力劲科技-00558.HK-Beneficiary_of_new_energy_vehicles_capex_growth_4页_552kb

L.K. Technology (558 HK) Summary

Core Content

L.K. Technology (558 HK) is a leading manufacturer of die-casting machines, plastic injection molding machines, and CNC machining centers. The company has a strong market position in China, with an estimated 60% market share in die-casting machinery. It is also expanding its presence with a production facility in Italy (IDRA), acquired in 2008.

Key Growth Drivers

• Auto Capex Recovery: LK is well-positioned to benefit from the recovery in automotive capital expenditure, especially as the industry shifts towards die-casting for lighter vehicle components.
• New Energy Vehicles (NEVs): The rise of NEVs is expected to drive additional demand for die-casting machines, particularly for components like car bodies and battery cases. LK has secured significant orders from a major US NEV manufacturer.
• Replacement of Welding by Die-Casting: The trend of replacing steel welding with die-casting is expected to increase demand for large die-casting machines, which LK is capable of producing.

Revenue and Performance

• Revenue Breakdown (1HFY21):

  • Die-casting machine: HK$1,119 million (64% of total revenue)
  • Plastic injection molding machine: HK$564 million (33% of total revenue)
  • CNC machining center: HK$52 million (3% of total revenue)
  • Total Revenue: HK$1,735 million

• Revenue Growth (1HFY21):

  • Die-casting machine: 15.3% growth
  • Plastic injection molding machine: 28.9% growth
  • CNC machining center: 10.6% growth
  • Average: 19.2% growth

• Segment Results (1HFY21):

  • Die-casting machine: HK$156 million
  • Plastic injection molding machine: HK$44 million
  • CNC machining center: HK$-6 million
  • Total: HK$194 million

• Segment Margins (1HFY21):

  • Die-casting machine: 13.9%
  • Plastic injection molding machine: 7.9%
  • CNC machining center: -12.1%
  • Average: 11.2%

Financial Highlights

• Revenue Trends: Revenue declined in FY19 and FY20, but showed a strong recovery in 1HFY21, with a 15.3% increase in die-casting machine revenue.
• Net Income: Net income dropped significantly in FY20, but improved in 1HFY21.
• EPS: EPS increased by 76.4% in FY18, but fell sharply in FY19 and FY20.
• P/B Ratio: The stock is currently trading at 6x historical P/B, which is far higher than any period in the company's history.
• Share Price Performance: The share price surged 17x over the past six months, driven by strong demand recovery and orders from a major US NEV manufacturer.

Strategic Moves

• Disposal of Assets: In January, LK announced the sale of land use rights and certain buildings in Shenzhen to Shenzhen Wanjin Investment for HK$1.91 billion, with an expected disposal gain of HK$1.87 billion.
• Factory Relocation: LK plans to relocate its manufacturing plant to Shen-Shan Special Cooperation Zone to increase production capacity.

Shareholding and Market Data

• Shareholding Structure:

  • Liu's family: 65.4%
  • Others: 34.6%

• Stock Data:

  • Market Cap: HK$12,032 million
  • Average 3-month turnover: HK$45 million
  • 52-week High/Low: HK$10.18 / HK$0.30
  • Total Issued Shares: 1,191 million

Analyst Ratings

• CMBIS Rating: NOT RATED
• Market Performance:
  • OUTPERFORM: Industry expected to outperform the relevant broad market benchmark
  • MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark
  • UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark

Disclosures and Disclaimer

• The report contains forward-looking statements and is based on publicly available information.
• CMBIS does not provide individually tailored investment advice and recommends consulting a professional financial advisor.
• There are risks involved in trading securities, and past performance does not guarantee future results.
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