20131029-大和证券-Initiation__materially_different_14页_643kb

Ju Teng International (3336 HK) Summary

Core Content

Ju Teng International (3336 HK) is a leading supplier of plastic casings for notebook PCs, with a global market share exceeding 30%. The company is initiating coverage with a Buy (1) rating, highlighting its potential for growth through a shift in product mix towards non-plastic materials such as metal and composite materials, which offer higher profit margins.

Main Points

Product Mix Shift

• Non-plastic casings (metal and composite materials) have higher gross margins (25-30%) compared to plastic casings (13-15%).
• The shift is expected to improve profit margins and drive revenue and earnings growth.

Revenue Breakdown

• Notebook casings: Expected to decline from 89% in 2012 to 63% in 2014.
• Tablet casings: Projected to increase from 6% in 2012 to 31% in 2014.
• Smartphone casings: Expected to grow from 4% in 2013 to 8% in 2014.

Key Clients

• Notebook clients: Dell, HP, Lenovo, Acer, and major OEMs (excluding Apple).
• Tablet clients: Amazon, Microsoft, Google (Nexus 7), and major notebook OEMs.
• Smartphone clients: Motorola (Moto X), with potential for new clients in 2014.

Material-Specific Insights

• Metal casings: Expected to grow from 15% in 2012 to 31% in 2014. The company has enhanced its capabilities through a joint venture with Compal Electronics.
• Composite materials: Projected to grow from 2% in 2012 to 16% in 2014. Ju Teng has been supplying carbon-fibre casings to Sony since 2012 and glass-fibre casings to Motorola.

Financial Performance

• Revenue: Expected to grow from HKD9,178m in 2013 to HKD10,733m in 2015.
• Operating profit: Projected to increase from HKD1,144m in 2013 to HKD1,695m in 2015.
• Net profit: Forecast to rise from HKD731m in 2013 to HKD1,223m in 2015.
• EPS (fully diluted): Expected to increase by 19.3% in 2013, 36.4% in 2014, and 22.7% in 2015.
• ROE: Projected to rise from 12.8% in 2013 to 16.0% in 2015.

Valuation

• Target price: HKD6.30 (6-month target), based on a PER of 8x on one-year forward EPS.
• Current PER: 8.0x for 2013E and 5.9x for 2014E.
• PBR: Expected to expand as earnings grow.
• EV/EBITDA: Projected to decrease from 5.1x in 2013 to 2.7x in 2015.

Earnings Revisions

• 2013-14 earnings forecasts have been revised upwards over the past two years due to consistent improvements in profit margins.
• The company has shown positive EPS growth and improving profitability.

Risks

• Weaker-than-expected demand for smart devices.
• Competition pressure in the metal-casing business.

Key Information

Growth Outlook

• The company is expected to benefit from the growth in tablet and smartphone demand, which should partially offset weaker notebook demand.
• The shift to non-plastic materials is a key driver for earnings momentum and profit margin expansion.

Operational Highlights

• Metal casing production: Utilizes a joint venture with Compal Electronics for magnesium alloy thixomolding.
• Plastic casing production: The company has a capacity of 88 million PCs/year for notebooks.
• Composite materials: Leveraging experience in plastic casing to reduce costs and improve yield for carbon and glass fibre casings.

Financial Position

• Net debt to equity: Expected to decrease from 50.6% in 2008 to 32.4% in 2013.
• Current ratio: Projected to improve from 1.4 in 2008 to 2.0 in 2015.
• Free cash flow yield: Expected to rise from 9.4% in 2013 to 4.0% in 2015.

Dividend Yield

• The dividend yield is forecast to increase from 1.5% in 2012 to 2.6% in 2015.
• DPS (dividends per share) is expected to rise from HKD0.079 in 2013 to HKD0.130 in 2015.

Market Performance

• 12-month share price range: 3.09 - 5.49 HKD.
• Market cap: 0.76 billion USD.
• 3m avg daily turnover: 4.36 billion USD.

Conclusion

Ju Teng is positioned to benefit from the shift in product mix towards non-plastic materials, which should drive earnings growth and profit margin expansion. The company's diversification into tablets and smartphones, along with its strong client base and improving financial metrics, supports the Buy (1) rating. However, the company faces risks from market demand fluctuations and intense competition in the metal-casing segment.