20230331-招银国际-通达集团-00698.HK-FY22_results_below__GPM_recovery_on_better_product_mix_7页_1mb

Tongda (698 HK) Summary

Core Content

Tongda, a Hong Kong-listed company, reported FY22 results showing a decline in revenue and net profit, primarily due to weak Android demand and macroeconomic challenges. Despite this, the company's gross profit margin (GPM) improved to 18.4%, driven by a better product mix and increased sales of high-margin Apple products. Looking ahead, management remains optimistic about the company's future, particularly with the potential for growth in non-handset businesses and the expected ASP and GPM upside from Apple product demand in 2H23E.

Main Points

• FY22 Performance:

  • Revenue dropped 20% YoY to HK$7,559 million, missing both the analyst and consensus estimates.
  • Net profit fell 39.8% YoY to HK$137 million, primarily due to a significant loss in the smart electrical appliances segment, which is now a discontinued operation.
  • GPM increased by 2.5ppts YoY to 18.4%, reflecting a shift in product mix and Apple's contribution to higher margins.

• Segment Analysis:

  • Handsets: Revenue declined 27% YoY due to weak domestic smartphone demand.
  • Household and Sports Goods: Down 4% YoY due to inventory corrections by European and US customers.
  • Network Communications and Others: Rose 12% YoY, driven by NEV aluminium battery and auto interior component orders.
  • Apple Products: Increased revenue by 7% YoY, with management anticipating further growth in 2023-2024.

• Earnings Revision:

  • FY23-24E EPS was revised down by 19-23% to account for ongoing Android weakness and dilution from award shares.
  • Revenue forecasts for FY23E and FY24E were adjusted downward by 13-14%, while GPM was revised upward due to increased Apple sales.

• Valuation:

  • The target price (TP) was revised to HK$0.20, based on a 5.5x FY23E P/E, which is 20% below the 1-sd of the 8-year historical average P/E of 7x.
  • The stock currently trades at 3.2x and 2.9x FY23E and FY24E P/E, respectively, which is considered attractive given the expected earnings recovery and improving profitability.
  • The stock is rated BUY, indicating a potential return of over 15% in the next 12 months.

Key Information

• Earnings Summary:

  • Revenue: FY21A: HK$9,433M, FY22A: HK$7,559M, FY23E: HK$7,845M, FY24E: HK$8,642M, FY25E: HK$9,386M
  • Net Profit: FY21A: HK$228.2M, FY22A: HK$137.3M, FY23E: HK$353.5M, FY24E: HK$386.3M, FY25E: HK$431.8M
  • EPS (Reported): FY21A: 2.89 cents, FY22A: 1.41 cents, FY23E: 3.64 cents, FY24E: 3.97 cents, FY25E: 4.44 cents
  • P/E: FY21A: 13.8x, FY22A: 9.8x, FY23E: 3.2x, FY24E: 2.9x, FY25E: 2.6x
  • P/B: FY21A: 0.3x, FY22A: 0.1x, FY23E: 0.1x, FY24E: 0.1x, FY25E: 0.1x
  • Dividend Yield: 6.7% for FY23E and FY24E
  • ROE: FY21A: 3.1%, FY22A: 1.7%, FY23E: 4.5%, FY24E: 4.8%, FY25E: 5.1%

• Valuation Table:

  • Tongda: TP HK$0.20, Up/Downside 72.5%, P/E 3.2x / 2.9x, P/B 0.1x / 0.1x
  • BYDE: HOLD, TP HK$0.20, P/E 15.7x / 12.7x, P/B 1.6x / 1.4x
  • FIH: NR, TP NA, P/E 21.7x / 10.8x, P/B 0.5x / 0.5x
  • Everwin: NR, TP NA, P/E 23.8x / 14.9x, P/B 2.3x / 2.4x
  • Janus: NR, TP NA, P/E 13.9x / 10.8x, P/B 3.1x / 2.6x
  • Foxconn: NR, TP NA, P/E 12.7x / 11.9x, P/B 0.6x / 0.5x
  • Catcher: NR, TP NA, P/E 21.0x / 17.3x, P/B 0.8x / 0.8x

• Shareholding Structure:

  • Landmark Worldwide Holdings Ltd: 24.4%
  • Wang Ya Nan: 7.8%

• Stock Performance:

  • 1-month: -9.4% (Absolute), -11.7% (Relative)
  • 3-months: -10.1% (Absolute), -12.4% (Relative)
  • 6-months: +22.1% (Absolute), +3.5% (Relative)

• Market Cap:

  • HK$1,127.4 million

• Analyst Certification:

  • The analyst certifies that the views expressed accurately reflect personal views and confirms no prior or future trading in the covered stocks within the specified time frames.

• Ratings:

  • BUY: Potential return of over 15% in next 12 months
  • HOLD: Potential return of +15% to -10%
  • SELL: Potential loss of over 10%
  • NOT RATED: Not rated by CMBIGM
  • 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

Conclusion

Despite the challenges in the Android market, Tongda's improved GPM and positive outlook on Apple product growth and non-handset business expansion suggest potential for recovery and growth in the coming years. The current valuation is considered attractive, with the stock trading at a discount to historical averages, and the analyst maintains a BUY rating.