Equity Research Summary: Truly International Holdings Limited (732 HK)
Core Information
- Company: Truly International Holdings Limited
- Industry: Display Module / China
- Research Analysts: Yuji Fung, Dallas Cai
- Contact:
- Yuji Fung: +852 2135 0236
- Dallas Cai: +852 2135 0248
- Email: yuji.fung@oriental-patron.com.hk, dallas.cai@oriental-patron.com.hk
- Research Date: 23/11/2018
- Stock Price: HK$1.19
- Target Price: HK$1.55 (+30%)
- Market Cap: HK$3,914.18 million
- Issue Shares: 3,289.23 million
- Major Shareholder: Lam Wai Wah (46.1%)
Key Financial Data
| Metric |
Value (HK$) |
| 12 Months High |
4.08 |
| 12 Months Low |
1.05 |
| 3M Avg Daily Vol. (mn) |
5.08 |
| Issue Share (mn) |
3,289.23 |
| Market Cap (HK$mn) |
3,914.18 |
| Fiscal Year |
12/2017 |
Company Overview
Truly International Holdings Limited is a company that through its subsidiaries, manufactures and sells liquid crystal display products, electronic consumer products (including calculators, pagers, MP3 players), and electronic components.
3Q18 Performance
- Turnover: Flat YoY at HK$5,239 million (up 0.7% from HK$5,204 million in 3Q17).
- GPM: Down 0.7ppts YoY to 9.4%.
- Smartphone-related Sales:
- FPM increased 88% YoY to HK$470 million.
- CCM increased 29% YoY to HK$1,650 million.
- YTD Turnover (10M18): Declined 7% YoY to HK$16,202 million vs HK$17,454 million in 10M17.
- Steady Improvement: Monthly turnover improved, suggesting potential upside to FY18E revenue estimate of HK$19,262 million.
Key Concerns
- Loss from Associate (Truly Huizhou): Widened 25% YoY to HK$434 million, indicating slower-than-expected ramp-up of yield and utilization rate.
- Breakeven Delayed: Previously expected in 4Q18E, now estimated for mid-FY19E.
- Litigation Risk: Truly Shanwei is involved in a pending civil complaint with Shenzhen Goodix Technology, accused of patent infringement.
Financial Forecast and Valuation (Exhibit 1)
| Year |
Revenue (HK$ million) |
Revenue Growth (%) |
Adjusted Net Profit (HK$ million) |
Net Profit Growth (%) |
Adjusted EPS (HK$) |
EPS Growth (%) |
| FY16A |
22,072 |
13.6% |
581.9 |
-31.2% |
0.200 |
-31.2% |
| FY17A |
20,733 |
-6.1% |
476.7 |
-18.1% |
0.161 |
-19.6% |
| FY18E |
19,262 |
-7.1% |
323.8 |
-32.1% |
0.104 |
-35.5% |
| FY19E |
19,589 |
1.7% |
402.5 |
24.3% |
0.129 |
24.3% |
| FY20E |
21,075 |
7.6% |
515.6 |
28.1% |
0.165 |
28.1% |
Key Ratios
| Metric |
FY16A |
FY17A |
FY18E |
FY19E |
FY20E |
| Gross Margin (%) |
9.9% |
9.8% |
10.8% |
11.3% |
11.6% |
| Operating Margin (%) |
6.4% |
6.3% |
6.2% |
6.6% |
6.9% |
| Net Margin (%) |
2.6% |
0.3% |
1.7% |
2.1% |
2.4% |
| P/E (x) |
6.3 |
7.8 |
12.1 |
9.8 |
7.6 |
| P/B (x) |
0.5 |
0.5 |
0.5 |
0.5 |
0.5 |
| Yield (%) |
7.1 |
0.8 |
3.3 |
4.1 |
5.2 |
| DPS (HK$) |
0.042 |
0.052 |
0.066 |
- |
- |
Risks
- Slow ramp-up of G5 plant.
- Faster-than-expected ASP erosion.
- Less upbeat shipments for non-smartphone-related products.
- Unfavorable exchange rate fluctuations.
Revenue Segments (3Q18)
| Segment |
Revenue (HK$ million) |
YoY Growth (%) |
| Automotive products |
700 |
204.3% |
| Industrial, medical, IoT and other |
1,070 |
-27.7% |
| Touch related products for smartphone |
1,160 |
-36.6% |
| Smartphone displays (without touch panel) |
180 |
28.6% |
| Compact camera modules |
1,650 |
28.9% |
| Fingerprint identification modules |
470 |
88.0% |
Income Statement (Year to Dec)
| Metric |
FY16A (HK$ million) |
FY17A (HK$ million) |
FY18E (HK$ million) |
FY19E (HK$ million) |
FY20E (HK$ million) |
| Revenue |
22,072 |
20,733 |
19,262 |
19,589 |
21,075 |
| COGS |
-19,876 |
-18,693 |
-17,179 |
-17,368 |
-18,636 |
| Gross Profit |
2,196 |
2,040 |
2,083 |
2,221 |
2,440 |
| Operating Profit (EBIT) |
1,421 |
1,296 |
1,198 |
1,299 |
1,444 |
Peer Group Comparison (Exhibit 5)
| Company |
Ticker |
Price (HK$) |
Mkt Cap (US$ million) |
P/E (x) |
P/B (x) |
EV/EBITDA (x) |
Net Margin (%) |
ROE (%) |
| Truly Intl Hldgs |
732 HK |
1.19 |
500 |
0.8 |
7.8 |
9.8 |
2.6 |
8.4 |
| China Display Op |
334 HK |
0.55 |
147 |
175.7 |
8.3 |
12.5 |
5.8 |
7.6 |
| Boe Technology-A |
000725 CH |
2.71 |
13,499 |
12.5 |
3.7 |
1.10 |
7.6 |
8.0 |
| Sharp Corp |
6753 JP |
1760.00 |
8,305 |
32.1 |
16.6 |
12.8 |
9.0 |
8.1 |
| Samsung Electron |
005930 KS |
42400.00 |
240,261 |
409.8 |
7.1 |
6.0 |
2.6 |
2.2 |
| Lg Display Co Lt |
034220 KS |
16900.00 |
5,338 |
33.1 |
3.4 |
3.4 |
2.1 |
3.3 |
Key Observations
- The company reported a flat turnover in 3Q18, mainly driven by smartphone-related product recovery.
- The widening loss from associate Truly Huizhou is a key overhang, delaying breakeven to mid-FY19E.
- The company maintains a BUY rating with an unchanged target price of HK$1.55 based on a 12x FY19E PE.
- The litigation with Shenzhen Goodix Technology remains a risk.
- The company's financials show a steady improvement in monthly turnover, indicating potential for revenue growth.
- The P/E ratio is projected to increase in FY19E, reflecting better earnings expectations.
- The company's financial leverage and net debt/equity ratio are stable, but the company faces challenges in terms of net margin and gross margin.
- The company's performance in the smartphone-related segments is improving, with FPM and CCM showing significant YoY growth.
Summary
Truly International Holdings Limited (732 HK) is a manufacturer and seller of display modules, electronic consumer products, and components. The company's 3Q18 results show a flat turnover and a slightly lower GPM, which is attributed to RMB depreciation and product mix upgrades. Despite this, the company's smartphone-related products are showing recovery, with FPM and CCM sales increasing significantly. The loss from associate Truly Huizhou has widened, indicating slower-than-expected ramp-up, and the breakeven is now expected in mid-FY19E instead of 4Q18E. The company maintains a BUY rating with an unchanged target price of HK$1.55. The company faces several risks, including the slow ramp-up of the G5 plant, faster-than-expected ASP erosion, less upbeat shipments for non-smartphone-related products, and unfavorable exchange rate fluctuations. The peer group comparison shows that the company's P/E and P/B ratios are in line with the sector average, but the company's net margin and gross margin are lower than some peers. The company's smartphone-related segments are showing improvement, with FPM and CCM sales increasing significantly.
