20260227-招银国际-京东方精电-00710.HK-2025_preview_near-term_earnings_dragged_by_pricing_pressure_and_new_plant_profitability_6页_767kb

BOE Varitronix (710 HK) Summary

Core Content

BOE Varitronix (710 HK) is a subsidiary of BOE Technology Group and is primarily involved in the display industry, particularly in the auto display market. The company is currently facing near-term earnings challenges due to domestic demand weakness, pricing pressure, and lower-than-expected profitability from new production facilities in Vietnam and Chengdu. However, the outlook for 2026 is positive, with expectations of earnings recovery driven by overseas sales growth, capacity expansion, and margin improvements.

2025 Earnings Preview

• Revenue: Estimated at HK$14,533 million for FY25E, representing an 8.1% YoY growth.
• Net Profit: Expected to decline by 3.3% YoY to HK$378 million.
• Net Profit Margin (NPM): Projected at 2.6% for FY25E, down from 2.8% in FY24A.
• Earnings Per Share (EPS): Estimated at HK$0.48 for FY25E, below the consensus estimate of HK$0.53.
• 2H25E Revenue: HK$7,863 million (+8% YoY).
• 2H25E Net Profit: HK$198 million (-10% YoY).
• Net Margin: Expected to remain at 2.5% for 2H25E, slightly below the 2.7% in 1H25.

2026 Outlook

• Revenue Growth: Expected to increase by 9.9% YoY to HK$15,979 million.
• Net Profit Growth: Anticipated to rise by 25.0% YoY to HK$473 million.
• Key Drivers:
  • Overseas Sales Growth: Projected to grow by $20%+ YoY, supported by share gains with overseas OEMs.
  • Vietnam Capacity Ramp-Up: Expected to contribute to sales growth.
  • Chengdu Plant Improvements: Higher utilization and yield are anticipated, leading to margin improvement.
  • System Business: Order wins in high-margin LTPS/OLED projects and improved operating efficiency are expected.

Valuation and Key Risks

• Earnings Revision: FY25-27E EPS estimates have been revised down by 5-7% to reflect near-term challenges.
• Target Price (TP): Revised to HK$8.40, based on a 14.0x FY26E P/E.
• Current Price: HK$4.67.
• P/E Ratio:
  • FY26E: 7.8x
  • FY27E: 6.3x
• P/B Ratio: 0.3x for both FY26E and FY27E.
• Key Risks:
  • Domestic demand weakness.
  • Continued ASP (Average Selling Price) and margin pressure.
  • Lower yields in new production facilities.

Shareholding and Financial Highlights

• Shareholding Structure:
  • BOE Technology Group: 53.0%
  • Ko Chun Shun: 5.6%
• Market Capitalization: HK$3,698.6 million.
• Share Performance:
  • 12-month price performance: -32.4% absolute, -34.6% relative.
• Financial Metrics:
  • Revenue Growth: 8.1% for FY25E, 9.9% for FY26E, and 12.8% for FY27E.
  • Net Profit Growth: -3.3% for FY25E, +25.0% for FY26E, and +22.9% for FY27E.
  • Operating Margin: Expected to decline to 2.9% in FY25E, improving to 3.3% in FY26E.
  • Net Margin: Expected to decline to 2.6% in FY25E, improving to 3.0% in FY26E.
  • ROE (Return on Equity): Projected at 8.0% for FY25E, rising to 9.3% in FY26E and 10.7% in FY27E.

Earnings and Valuation Comparison

• CMBI Estimates vs Consensus:
  • Revenue: CMBI estimates are 2.3% lower than the consensus for FY25E.
  • Operating Profit: CMBI estimates are 7.0% lower than consensus for FY25E.
  • Net Profit: CMBI estimates are 9.3% lower than consensus for FY25E.
  • EPS: CMBI estimates are 9.7% lower than consensus for FY25E.
• Valuation Bands:
  • P/E Ratio: 12M forward P/E is expected to be in a range based on market conditions.
  • P/B Ratio: 12M forward P/B is also expected to be in a range based on market conditions.

Analyst Recommendation

• Rating: Maintain BUY.
• Target Price: HK$8.40.
• Reasoning:
  • Positive outlook on BOEVx's industry leadership and overseas share gains.
  • Strong support from parent company BOE for R&D and client wins.
  • The stock is trading at a discount relative to its future earnings potential.

Summary of Key Points

• Short-term Challenges: Domestic demand, pricing pressure, and new plant yields are dragging earnings.
• Long-term Optimism: Expected recovery in 2026 with overseas growth, capacity expansion, and margin improvements.
• Valuation: Attractive risk/reward with P/E ratios of 7.8x and 6.3x for FY26E and FY27E.
• Recommendation: Maintain BUY with a revised target price of HK$8.40.