20220330-招银国际-东江集团控股-02283.HK-Solid_FY21__Business_expansion_on_track_7页

TK Group (2283 HK) Company Update Summary

Core Content

TK Group reported strong financial results for FY21, with revenue and net profit growing by 18.2% and 34.7% YoY, respectively. Despite a 2.5 percentage point decline in gross margin due to rising logistics and raw material costs, the company's performance was robust, driven by growth in key segments.

Main Segments and Growth

• Mobile & Wearables: Grew by 12% YoY, supported by clients such as Apple, Otterbox, and Jabra.
• Communication (Polycom): Achieved a 70% YoY growth.
• Smart Home: Increased by 51% YoY, with major clients including Google and Amazon.
• Automobile: Rose by 11% YoY.
• Medical Devices: Grew by -5% YoY in FY21 but is expected to recover in the coming years.

Financial Highlights (FY20A to FY24E)

Business Expansion and M&A Strategy

• Expansion Plans: Management is confident about expansion in Shenzhen, Vietnam, and Huizhou, with CAPEX investment of HK$200mn for automation and capacity expansion.
• M&A Strategy: Plans to invest HK$300-400mn in M&A to accelerate e-cigarette expansion, particularly in Suzhou.
• Projects-on-hand: Reached HK$918.3mn in FY21, indicating a healthy pipeline.

Earnings and Valuation

• Earnings Forecast: CMBIGM expects 21.2% and 27.3% net profit growth for FY22E and FY23E, respectively.
• EPS Forecast: CMBIGM's FY22E and FY23E EPS forecasts are 0.41 and 0.52, respectively, which are -8% and 0% below the consensus.
• Target Price: Adjusted to HK$3.38, representing a 42% upside from the current price of HK$2.38.
• Valuation: Trading at 5.8x FY22E P/E, which is below its 5-year historical average of 8.2x, making the stock attractive with a 23% CAGR in EPS from FY21 to FY24E.

Catalysts and Risks

• Catalysts: Expected product launches by Google and Amazon, margin recovery in FY22E, and better utilization of capacity.
• Risks: Cost inflation and a weaker macroeconomic environment could impact performance.

Shareholding and Performance

• Shareholding Structure:

  • Eastern Mix Co Ltd: 42.36%
  • Pui Leung Li: 10.73%
  • FIL Ltd: 8.04%

• Stock Performance:

  • 1-Month: +0.9%
  • 3-Months: -7.1%
  • 6-Months: -19.9%

Key Financial Ratios

• Gross Margin: Expected to recover to 25.0% and 25.6% in FY22E and FY23E.
• Operating Margin: Projected to increase from 10.1% in FY21 to 12.1% in FY23E.
• Net Profit Margin: Expected to rise from 11.7% in FY21 to 13.9% in FY24E.
• Current Ratio: Maintained at 2.2-2.3x, indicating strong short-term liquidity.
• Inventory Turnover Days: Improved from 98.6 in FY21 to 70.5 in FY22E.
• Receivable Turnover Days: Reduced from 43.7 in FY21 to 48.0 in FY22E.

Conclusion

• Investment Recommendation: Maintain BUY.
• Valuation: The stock is undervalued compared to historical P/E ratios and is expected to deliver strong returns over the next 12 months.
• Outlook: Positive long-term outlook with improving profitability and ROE.