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Trigiant Group (1300 HK) Research Summary

Core Content

This report from DBS Group Research provides an analysis of Trigiant Group (1300 HK), a leading manufacturer of RF coaxial cables in China. The report highlights the company's financial performance, recent share price movements, and revised earnings forecasts, while also addressing market rumors and the company's strategic actions.

Main Points

• Rating and Target Price: DBS maintains a BUY rating with a 12-month target price of HK$4.60, down from the previous HK$5.30.
• Earnings Revision: The analyst has revised the FY13 and FY14 earnings due to a more conservative revenue outlook. The FY13 sales growth is now projected at 19% (previously ~25%), and net profit growth is expected at 27% and 29%, respectively.
• Share Price Volatility: The stock experienced a sharp decline on 8 Nov 2013, with a 19% drop (47% intraday). This was attributed to negative rumors and panic selling, but no further developments have emerged.
• Investor Confidence: The company's major shareholders, including Chairman Qian and Trigiant Investments, have actively bought shares post-19% plunge to restore confidence.
• Business Outlook: Despite share price volatility, the company's business remains healthy with a factory utilization rate of ~70%. The analyst remains positive about the long-term prospects.
• 4G Opportunity: Trigiant is expected to benefit significantly from the 4G Capex cycle, as the Chinese government has issued TD-LTE licenses to the three major telecom operators.
• Valuation: The stock currently trades at a low valuation, with a PE of 7.5x for FY13 and 5.8x for FY14, which the analyst considers undemanding.
• Shareholding Structure: Trigiant Investments holds the largest stake (54.8%), with Chairman Qian's direct holdings at 0.49%. The free float is at 44.8%.
• Dividend Yield: The dividend yield is expected to increase to 5.6% for FY14, reflecting a growing focus on shareholder returns.
• Key Financial Metrics: The company is expected to maintain a strong ROAE (Return on Average Equity) of 24.4% for FY14, with consistent net profit growth.

Key Information

• Earnings Growth:
  • FY13: Net profit is expected to grow by 27%
  • FY14: Net profit is expected to grow by 29%
• Valuation Metrics:
  • FY13 PE: 7.5x
  • FY14 PE: 5.8x
  • FY13 P/Cash Flow: 30.9x
  • FY14 P/Cash Flow: 17.9x
  • FY13 P/Free CF: 41.6x
  • FY14 P/Free CF: 43.6x
• Capital Expenditure:
  • The company has a history of capital expenditure, with a Capex to Debt ratio of 11.6% for FY14.
• Share Buybacks:
  • No company-level share buybacks are planned.
  • Chairman Qian and Trigiant Investments have made multiple share purchases to support the stock.
• Market Catalysts:
  • Completion of China Mobile's 180k TD-LTE base station construction
  • Potential new bidding for flame retardant flexible cables

Financial Highlights

Revenue and Profit Forecasts (RMB m)

Earnings Per Share (HK$)

Dividend and Yield

Valuation Metrics

Analyst's View

The analyst remains positive on Trigiant's future prospects, particularly due to its position as a key beneficiary of the 4G Capex cycle. The recent share price correction is viewed as an opportunity for entry. The company's management and major shareholders have taken steps to support the stock, indicating confidence in its long-term value. Despite the lower target price, the valuation remains attractive, and the company is expected to maintain strong financial performance.

Summary

Trigiant Group is a leading manufacturer of RF coaxial cables in China, with a healthy business outlook and a strong position in the 4G infrastructure market. Despite recent share price volatility, the company's fundamentals remain solid, and management has taken proactive steps to restore investor confidence. The analyst maintains a BUY rating with a revised target price of HK$4.60, based on conservative earnings projections and attractive valuations.