20180827-中国银河国际证券-巨腾国际-03336.HK-Weak_1H_2018_Results_due_to_favorable_factors.Recovery_from_the_trough_5页_1mb

Ju Teng International [3336.HK] 2018 Summary

Core Content

Ju Teng International (3336.HK) reported a net loss of HK$154 million for the first half of 2018, which was in line with its profit warning from May 2018. The company's turnover grew by 5.3% YoY to HK$3,946 million, marking the fastest half-year growth since 2012. This growth was attributed to the recovery in the PC industry, particularly driven by corporate replacement demand. However, the net loss was primarily due to several factors, including RMB appreciation, additional costs from a delayed factory relocation in Jiangsu, and write-offs related to older models.

Main Financial Performance

• Turnover (1H 2018): HK$3,946 million (+5.3% YoY)
• Gross Profit: HK$261 million (down from HK$1,104 million in 1H 2017)
• Gross Margin: 9.7% (down from 14.2% in 1H 2017)
• Net Profit: HK$-153 million (down from HK$82 million in 1H 2017)
• Net Margin: -0.3% (down from 1.0% in 1H 2017)
• EPS (Basic): HK$-0.02 (down from HK$0.07 in 1H 2017)
• Dividend Yield: 2.62% (excluding the impact of disposal gains)
• PBR: 0.2x
• PER (2019E): 7.6x
• Market Cap: US$211 million
• Shares Outstanding: 1,120 million
• Share Price (Close): HK$1.44 (Aug 24, 2018)
• Target Price: HK$1.51 (+4.9%)
• Free Cash Flow Yield: -1.08% (2018F)
• Net Gearing: 44.3% (2018F)

Key Drivers of Performance

• PC Market Recovery: The PC industry showed positive growth in 2018, driven by corporate replacement cycles and the launch of Windows 10.
• RMB Appreciation: This negatively impacted the company's profitability, especially in Q1 2018.
• Factory Relocation Delays: Increased costs from the delayed relocation of manufacturing facilities in Jiangsu.
• Inventory Provisions: The company increased provisions for slow-moving and obsolete inventory.
• Microsoft's New Products: Expected to boost Ju Teng's performance in 2H 2018 with the launch of products like the Surface GO.
• RMB Softening in Q2 2018: Improved profitability and operating performance.

Outlook and Projections

• 2018 Net Loss: HK$25.4 million
• 2019 Net Profit (excluding one-off gains): HK$216.6 million
• Gross Margin Improvement: Expected to rise to 14.2% in 2019, driven by cost optimization and operational efficiency.
• 2H 2018 Recovery: Expected to be supported by Microsoft product shipments and a weaker RMB.
• Sentiment: The company's sentiment is not expected to improve significantly without a major positive catalyst.
• Share Price: Likely to remain range-bound due to lack of specific catalysts.

Key Financial Metrics (2015–2019)

Key Assumptions and Trends

• Turnover Growth: Expected to continue with a 4.8% growth in 2018 and 7.0% in 2019.
• Gross Margin: Projected to increase to 14.2% in 2019, reflecting improved cost management.
• Operating Expenses: S,G&A costs increased in 2018, but are expected to stabilize in 2019.
• Capital Expenditure (Capex): Expected to remain around HK$1,150.5 million in 2018 and HK$1,234.5 million in 2019.
• Net Debt to Equity: Maintained at around 44% in 2018 and expected to decrease slightly to 42% in 2019.

Peer Comparison

Key Notes

• Ju Teng's NAV per share was HK$5.5 as of 30 June 2018, down from HK$5.9 as of 31 December 2017.
• Microsoft remained the largest customer, accounting for approximately 20% of total turnover in 1H 2018.
• The company is not trading at a demanding valuation in terms of PBR compared to peers.
• The target PER of 7.6x is below the industry average, reflecting cautious expectations.
• The company's recovery is expected to be gradual and may not be reflected in the share price without a significant catalyst.

Conclusion

Ju Teng International experienced a weak 1H 2018 due to RMB appreciation, relocation delays, and inventory provisions, but showed signs of recovery with a 5.3% YoY turnover growth. Despite the net loss, the company is expected to report a net profit in 2H 2018 and for 2019, driven by Microsoft's new product shipments and a weaker RMB. However, the lack of a major catalyst and the continued cost pressures may keep the sentiment range-bound. The company's financial performance and valuation suggest a cautious outlook, with a new target price of HK$1.51 based on an 8x 2019E PER.