20180627-中国银河国际证券-建溢集团-00638.HK-Key_takeaways_from_FY18_results_presentation._Weak_FY18_results_behind_it__share_price_weakness_provides_a_buying_opportunity_2页_436kb_436kb

Kin Yat Holdings Limited FY18 Results Summary

Core Content

Kin Yat Holdings Limited (0638.HK) is a Hong Kong-listed company primarily engaged in the manufacturing of electrical and electronic products and motors, with a growing presence in real estate development. Listed on the Hong Kong Stock Exchange in 1997, the company has expanded its operations through strategic acquisitions, including the electric motor manufacturing business Standard Motor in 1999. Kin Yat currently operates three major production bases in China and is developing residential and commercial properties in Dushan, Guizhou.

Main Business Segments

• Manufacturing:

  • Focus on R&D and production of electrical and electronic products, and motors (Standard Motor).
  • The motor division is a key supplier in the office equipment segment and has successfully entered the automotive sector.
  • Kin Yat is expanding its production capacity for robotic cleaners and motors to meet increasing demand.

• Non-Manufacturing:

  • Primarily real estate development.
  • Active in the Dushan Economic Development Zone, Guizhou, with ongoing property projects.

FY18 Financial Performance

• Revenue: Increased by 22.7% YoY to HK$3,034.3m, compared to HK$2,472.2m in FY17.
• Gross Profit: Declined by 4.8 percentage points YoY to HK$306.0m, due to RMB appreciation and margin moderation.
• Net Profit: Decreased by 23.7% YoY to HK$149.8m, from HK$196.4m in FY17.
• Net Margin: Dropped to 4.9% from 7.9% in FY17.
• EPS (Basic): Declined to HK$0.35 from HK$0.47 in FY17.
• ROE: Reduced to 13.0% from 21.0% in FY17.
• Dividend Yield: Maintained at 3.76% for FY18, with a final dividend of HK$0.07 per share.

Key Insights from FY18 Results Presentation

• Strong order inflow for both electrical/electronic products and motor business.
• Management expects FY19 top-line growth to accelerate to over 30%, driven by both divisions.
• Inventory buildup in FY18 was due to securing key electronic components to lock in costs.
• The motor business has a significant order backlog, requiring rapid capacity expansion.
• Kin Yat is developing new robot products, including underwater robots, and VR/AR/MR gaming products.
• Gross margins are expected to improve sequentially in FY19 due to RMB depreciation and cost control.

Analyst View

• Despite weak FY18 results, the analyst remains cautiously optimistic.
• The share price correction following the results is viewed as a buying opportunity.
• The company is considered undervalued compared to peers like Johnson Electric (0179.HK), Mabuchi Motor, and IROBOT.
• Key catalysts for future growth include securing new projects, expanding Standard Motor's capacity, and property sales.

Risks and Considerations

• The decline in net profit was attributed to a drop in manufacturing business contribution.
• The company's net cash position worsened significantly in FY18, reaching HK$-315.0m.
• There are potential conflicts of interest due to China Galaxy International's financial interests in the company and its involvement in investment banking services.

Equity Rating Explanation

• BUY: Share price is expected to increase by >20% within 12 months.
• SELL: Share price is expected to decrease by >20% within 12 months.
• HOLD: No clear catalysts for growth, and the rating may be downgraded if performance does not improve.

Disclaimer and Disclosure

• This report is not directed at individuals or entities in jurisdictions where it would be illegal.
• The report is issued by Galaxy International Securities, based on reliable sources but not guaranteed.
• The company may be subject to financial interests by Galaxy International, potentially up to 1% of its market cap.
• The analyst certifies that the views expressed are personal and not necessarily those of the company or its affiliates.

Conclusion

Kin Yat Holdings Limited is a diversified company with strong growth potential in its manufacturing and real estate segments. While FY18 results were weaker than expected, the company is positioned for improved performance in FY19, supported by strong order inflow, new product development, and potential government subsidies. The analyst sees value in the current share price and recommends considering it as a buying opportunity.