20200330-软库中华金融服务-HOME_CONTROL-01747.HK-Stable_business_with_a_strong_cash_payout_15页_889kb

Home Control (01747.HK) Summary

Core Content

Home Control (01747.HK) is a home control solution provider based in Singapore with a global presence in North America, Europe, Asia, and Latin America. The company specializes in developing and offering remote controls for STBs, OTT devices, and smart TVs, and provides comprehensive solutions including product development, software and hardware integration, supply chain management, and after-sales services.

Main Points

• Business Model: Home Control operates an asset-light model, outsourcing labor-intensive assembly to third parties, which allows flexibility in response to macroeconomic and political changes.
• Stable and Cash-Generating Business: The company has a strong cash management ability, with a stable dividend policy that guarantees not less than 30% of annual distributable profits as dividends.
• Growth Potential: According to Frost & Sullivan, the number of MSO and OTT subscribers is expected to grow at a CAGR of 5.0% from 2019 to 2023, which could drive steady demand for remote controls.
• Product Portfolio: The company offers over 80 types of remote controls annually, with an average product life cycle of five years. It also provides advanced features like IR and RF connectivity, 3R text entry, voice control, and private listening via a 3.5mm audio plug.
• Market Position: The company is undervalued by the market, with a low market cap and limited product upgrade potential, but its stable cash flow and dividend policy make it attractive to long-term investors.
• Valuation and Recommendation: Based on DDM model plus net cash, the analyst initiates a "Buy" rating with a target price of HKD 0.87 per share, suggesting a potential upside for investors.

Key Information

Financial Highlights

• Current Price: HKD 0.60
• Target Price: HKD 0.87
• Market Cap: HKD 0.3 billion
• Dividend Yield (2019): 3.5%
• Dividend Payout Ratio: 50.0%
• Cash and Cash Equivalents (2019): USD 28.5 million
• Net Profit (2020–2022): USD 4.0mn / USD 4.8mn / USD 5.3mn
• Inventory Turnover Days: 50.5 / 50.4 / 50.3
• Receivable Turnover Days: 72.3 / 72.9 / 73.6
• Payable Turnover Days: 108.4 / 108.8 / 109.2
• Gross Margin: 19.5%
• Operating Margin: 4.4% / 4.8% / 5.1%
• Net Profit Margin: 1.5% / 2.1% / 2.5%
• Return on Equity (ROE): 32.5% / 22.0% / 22.7% / 21.2%
• Return on Asset (ROA): 2.7% / 3.6% / 4.2% / 4.4%
• Current Ratio: 132.2% / 131.4% / 125.4% / 126.1%
• Quick Ratio: 103.0% / 97.9% / 95.3% / 91.8%
• Cash Ratio: 43.9% / 39.7% / 33.9% / 29.8%
• Net Debt-to-Equity Ratio: 65.0% / 47.7% / 45.9% / 31.3%

Revenue and Market

• Revenue (2019–2022): USD 180.0mn / USD 188.8mn / USD 197.7mn / USD 216.3mn
• Revenue Breakdown (2017–2019): 75.0% / 73.9% / 59.8% from North America and Europe
• Customer Base: Includes major MSOs and OTT device brands such as Airtel, British Telecom, Vodafone, Orange, Foxtel, Frontier, Xiaomi, and Hisense

Strategic Initiatives

• M&A Plans: The company may pursue acquisitions in the OTT system and smart home security sectors to expand its product portfolio.
• Production Relocation: To mitigate risks from trade wars and rising costs in China, the company has relocated some production to Cambodia.
• Use of Proceeds: Funds from the IPO will be allocated as follows:
  • 17.9% for R&D
  • 28.9% for potential acquisitions
  • 17.4% for expanding the sales force
  • 19.8% for repaying borrowings
  • 7.7% for working capital and general corporate purposes

Peer Comparison

Peer	Market Cap (mn)	PE	Fw PE	PB	PS	Revenue (mn)	GM (%)	ROE (%)
UEIC	4,228.4	15.2	9.4	2.0	0.7	5,903.6	22.6	13.1
6758.JP	605,342.9	10.7	14.0	2,105.5	1.0	612,996.3	27.7	11.9
066570.KS	51,498.2	19.1	7.2	0.6	0.1	419,056.3	24.6	2.8
Average	220,356.5	15.0	10.2	702.7	0.6	345,985.4	25.0	9.3
Home Control	301.0	11.9	-	2.3	0.2	1,410.1	19.5	33.9

Investment Thesis

Home Control is a stable and cash-generating business with a strong focus on dividend distribution and a diversified customer base. The company is undervalued due to limited product innovation potential and thin liquidity, but its asset-light model and strong operational cash flow make it a good candidate for long-term investors. The analyst recommends a "Buy" rating with a target price of HKD 0.87 per share, expecting revaluation due to its solid fundamentals and potential for M&A-driven growth.

Risk Factors

• Lower-than-expected growth in MSO and OTT subscriptions
• Impact of the Coronavirus (COVID-19) on production in Southeast Asia and demand in the US and EU
• Potential increase in cash outflow for new business investments
• Change in dividend policy

Analyst Information

• Analyst: Brian NGO, CFA
• Contact: T: +852 2533 3713, E: brianngo@sbichinacapital.com
• Address: 4/F, Henley Building, No.5 Queen's Road Central, Hong Kong
• Research Source: Bloomberg, SBI China Capital

Disclaimer

This report is for informational purposes only and is not an offer to sell or the solicitation of an offer to buy any securities. The information is based on sources believed to be reliable, but no guarantees are made regarding its accuracy. SBI China Capital and its affiliates may have positions in the securities mentioned and may act on the information provided. Investors should conduct their own due diligence.