20220614-招银国际-通达集团-00698.HK-Corp_Day_Takeaways__Near-term_pressure_remains__nonhandset_to_drive_growth_in_FY23E_6页_1mb

Tongda Group (698 HK) Company Update Summary

Core Content

Tongda Group, listed on the Hong Kong Stock Exchange, is the subject of a recent equity research update from CMB International Global Markets. The report outlines the company's performance, outlook, and valuation as of FY22E and beyond, highlighting both challenges and growth opportunities.

Main Points

• FY22E Performance:

  • Revenue is expected to decline by single digits due to weak smartphone demand and the impact of the pandemic on production and logistics.
  • Net profit and EPS are under pressure, with the company revising down its FY22-24E EPS by 11–32% to reflect the anticipated weakness in FY22E.

• Growth Drivers in FY23E:

  • AR/VR: Tongda is set to enter Apple and Meta's AR/VR markets with potential sales of RMB 1 billion (7% of total sales).
  • Household & Sports Markets: Tongda Smart Tech is expected to see solid growth in these segments with healthy profitability.
  • EV Battery Business: Expected to reach HK$600mn to HK$1bn in sales in FY22E and FY23E, driven by rising pricing.
  • Smart Electrical Appliances: Focus is shifting to products with better margins.

• Handset Casing Sales Mix:

  • The sales mix of handset casings is expected to drop to 40% in FY22E and 30% in FY23E, compared to 50% in FY21E.
  • The company has been investing heavily in non-handset businesses since 2017, with a capex of HK$600mn in FY22E.

• RMB Depreciation:

  • Tongda is a beneficiary of the RMB depreciation, as it leads to higher sales in HKD and lower costs for RMB-denominated raw materials.

• Valuation:

  • The target price (TP) is set at HK$0.22, representing a 42% upside from the current price of HK$0.15.
  • The TP is based on a 5x P/E multiple for FY23E, and the current valuation (4.8x P/E for FY22E and 3.5x P/E for FY23E) is considered attractive, below historical averages.

• Earnings Forecast:

  • Revenue is expected to grow in FY23E and FY24E, with FY23E showing a 9.6% YoY increase and FY24E an 8.3% increase.
  • Net profit and EPS are projected to grow significantly, with FY23E EPS at HK$0.04 and FY24E at HK$0.06.

• Key Financial Highlights:

  • Revenue: HK$9,469mn in FY22E, HK$10,380mn in FY23E, and HK$11,239mn in FY24E.
  • Net Profit: HK$248mn in FY22E, HK$342mn in FY23E, and HK$489mn in FY24E.
  • EPS: HK$0.03 in FY22E, HK$0.04 in FY23E, and HK$0.06 in FY24E.
  • Gross Margin: Expected to increase from 16.6% in FY22E to 16.7% in FY23E and 17.7% in FY24E.
  • Operating Margin: Projected to rise from 3.5% in FY22E to 4.2% in FY23E and 5.4% in FY24E.
  • Net Margin: Expected to increase from 2.6% in FY22E to 3.3% in FY23E and 4.4% in FY24E.

• Analyst Recommendation:

  • Rating: BUY
  • Target Price (TP): HK$0.22
  • Upside: 42% from current price
  • Reasoning: Based on the company's growth potential in non-handset sectors and the attractive valuation.

Key Information

• Shareholding Structure:

  • Landmark Worldwide: 24.44%
  • Ya Nan Wang: 7.79%
  • Dimensional Fund: 1.44%

• Stock Data:

  • Market Cap: HK$1,477mn
  • Average 3-month Turnover: HK$3.54mn
  • 52-Week High/Low: HK$0.46 / HK$0.11
  • Total Issued Shares: 9,719mn

• Share Performance:

  • 1-Month: 28.8% (Absolute), 21.7% (Relative)
  • 3-Month: 13.4% (Absolute), 10.7% (Relative)
  • 6-Month: -41.5% (Absolute), -33.5% (Relative)

• Earnings Revision:

  • Revenue for FY22E is revised down to HK$9,469mn from the previous estimate of HK$10,944mn.
  • Net profit for FY22E is revised down to HK$248mn from HK$365mn.
  • EPS for FY22E is revised down to HK$0.03 from HK$0.05.

• Valuation Comparison:

  • Peers Valuation:
    • Tongda: P/E 4.8x (FY22E), 3.5x (FY23E)
    • BYDE: P/E 22.3x (FY22E), 13.2x (FY23E)
    • Ju Teng: P/E 7.6x (FY22E), 5.2x (FY23E)
    • FIH: P/E 18.7x (FY22E), 11.9x (FY23E)
    • Average P/E: 12.9x (FY22E), 8.2x (FY23E)

• Financial Summary:

  • Income Statement:
    • Revenue: HK$9,469mn (FY22E), HK$10,380mn (FY23E), HK$11,239mn (FY24E)
    • Gross Profit: HK$1,574mn (FY22E), HK$1,731mn (FY23E), HK$1,989mn (FY24E)
    • Net Profit: HK$248mn (FY22E), HK$342mn (FY23E), HK$489mn (FY24E)
  • Cash Flow:
    • Net cash from operating activities: HK$498mn (FY22E), HK$1,908mn (FY23E), HK$319mn (FY24E)
    • Capex: HK$600mn (FY22E), HK$600mn (FY23E), HK$600mn (FY24E)
  • Balance Sheet:
    • Total Assets: HK$15,534mn (FY22E), HK$18,018mn (FY23E), HK$17,034mn (FY24E)
    • Total Liabilities: HK$7,122mn (FY22E), HK$9,319mn (FY23E), HK$7,898mn (FY24E)
    • Shareholders’ Equity: HK$8,413mn (FY22E), HK$8,699mn (FY23E), HK$9,137mn (FY24E)

• Key Ratios:

  • Sales Mix:
    • Handsets: 70% (FY22E), 67% (FY23E), 63% (FY24E)
    • Household and Sports Goods: 13% (FY22E), 14% (FY23E), 16% (FY24E)
  • Growth:
    • Revenue: -5% (FY22E), 10% (FY23E), 8% (FY24E)
    • Net Profit: 9% (FY22E), 38% (FY23E), 43% (FY24E)
  • Profitability:
    • Gross Margin: 16.6% (FY22E), 16.7% (FY23E), 17.7% (FY24E)
    • Operating Margin: 3.5% (FY22E), 4.2% (FY23E), 5.4% (FY24E)
    • Net Profit Margin: 2.6% (FY22E), 3.3% (FY23E), 4.4% (FY24E)
  • Liquidity:
    • Current Ratio: 1.3 (FY22E), 1.3 (FY23E), 1.5 (FY24E)
    • Inventory Turnover Days: 143 (FY22E), 133 (FY23E), 136 (FY24E)

Conclusion

Despite near-term challenges in the smartphone segment, Tongda Group is positioned to benefit from growth in non-handset areas, particularly in AR/VR, household & sports markets, and EV battery production. The company's revised earnings and target price reflect the analysts' confidence in its future performance, with a BUY rating and a 42% upside. The valuation is considered attractive, especially with the potential for earnings growth and the company's diversification into high-margin sectors.