20220720-招银国际-亿和控股-00838.HK-Poised_for_higher_growth_in_2H22_3页_785kb

EVA Holdings (838 HK) Summary

Core Content and Overview

EVA Holdings (838 HK) is poised for higher growth in the second half of 2022 (2H22), following a positive profit alert for 1H22 indicating a $33-50%$ YoY increase in net profit. The firm maintains its BUY rating with a target price of HK$3.00, which represents an +81.8% upside from the current price of HK$1.65.

The report highlights EVA's strategic focus on high-growth sectors such as new-energy vehicles, solar, energy storage, and data servers, leveraging its expertise in moulding. It also emphasizes the potential for revenue and margin improvements in its office automation (OA) business, particularly due to increased self-made components from its Weihai plant.

Main Points and Key Information

Revenue and Earnings Growth

• Revenue is expected to grow steadily over the next few years:
  • FY22E: HK$6,353 million (+24.4% YoY)
  • FY23E: HK$8,238 million (+29.7% YoY)
  • FY24E: HK$9,777 million (+18.7% YoY)
• Net Profit is projected to increase significantly:
  • FY22E: HK$340 million (+119.0% YoY)
  • FY23E: HK$545 million (+60.4% YoY)
  • FY24E: HK$787 million (+44.4% YoY)
• EPS is expected to rise:
  • FY22E: HK$0.19
  • FY23E: HK$0.30
  • FY24E: HK$0.43

EVA's Business Segments

• Auto Components:
  • Revenue share increases from 22.8% in FY20A to 44.0% in FY24E.
  • Expected to benefit from higher ASP (Average Selling Price) for Tesla front seats, despite a slight production volume miss.
  • This could contribute HK$20-30 million in revenue for FY22E.
• Office Automation (OA):
  • Revenue is forecasted to grow by 20% YoY in both FY22E and FY23E.
  • The Weihai plant is expected to drive this growth, with more self-made components leading to better margins.

New Business Opportunities

• EVA is exploring new business areas in high-growth sectors, such as:
  • New-energy vehicles
  • Solar
  • Energy storage
  • Data servers
• These new ventures are expected to start generating significant revenue from FY23E onwards.

Valuation

• Sum-of-the-parts (SOTP) valuation is used:
  • Auto components: HK$2.34 per share (based on 20x FY22E P/E)
  • Office automation equipment: HK$0.66 per share (based on 8.5x FY22E P/E)
• P/E ratios are projected to decline over time:
  • FY22E: 6.8x
  • FY23E: 4.2x
  • FY24E: 3.1x
• P/B ratios also decrease:
  • FY22E: 0.7x
  • FY23E: 0.6x
  • FY24E: 0.5x
• Yield is expected to rise:
  • FY22E: 4.4%
  • FY23E: 6.9%
  • FY24E: 9.8%

Financial Metrics

• Gross margin improves from 18.4% in FY20A to 23.7% in FY24E.
• Operating margin increases from 0.9% in FY20A to 9.5% in FY24E.
• Net profit margin improves from -0.4% in FY20A to 8.1% in FY24E.
• ROE is expected to rise from -0.6% in FY20A to 20.2% in FY24E.
• ROA increases from -0.3% in FY20A to 10.4% in FY24E.

Cash Flow and Balance Sheet

• Net cash from operating activities is projected to increase:
  • FY22E: HK$637 million
  • FY23E: HK$953 million
  • FY24E: HK$1,121 million
• Net cash from investing activities declines over time:
  • FY22E: HK$-252 million
  • FY23E: HK$-284 million
  • FY24E: HK$-320 million
• Net cash from financing activities is negative in FY22E and FY23E, indicating potential share buybacks or debt repayment.
• Cash at the end of the year is expected to increase:
  • FY22E: HK$1,135 million
  • FY23E: HK$1,228 million
  • FY24E: HK$1,326 million

Key Risks

• Lower sales or margins could affect the target price.
• Production disruptions may be more severe than anticipated.
• Valuation assumptions are sensitive to changes in revenue and margin forecasts.

Share Performance and Market Position

• Market Cap: HK$2,886 million
• Shareholding Structure:
  • Zhang Hwo Jie's Family: 44.3%
  • Others: 55.7%
• Share Performance:
  • 1-mth: +22.2%
  • 3-mth: +7.1%
  • 6-mth: -7.8%

Analyst Certification and Disclosure

• The analyst certifies that all views reflect personal opinions and that compensation is not tied to specific recommendations.
• No trading or investment banking relationships with the companies discussed are disclosed.
• The report is not tailored for individual investors and is intended solely for distribution to major US institutional investors.

CMBIGM Ratings

• BUY: Potential return of over 15% over the next 12 months
• HOLD: Potential return of +15% to -10%
• SELL: Potential loss of over 10%
• NOT RATED: Stock not rated
• OUTPERFORM: Industry expected to outperform the market
• MARKET-PERFORM: Industry expected to perform in-line with the market
• UNDERPERFORM: Industry expected to underperform the market

Disclaimer

• The report is for informational purposes only and not an offer to buy or sell securities.
• Investors should independently evaluate the information and consult with a professional financial advisor.
• CMBIGM is not a registered broker-dealer in the United States, United Kingdom, or Singapore and is not subject to the same regulatory requirements.