CDOT (334 HK) Equity Research Summary
Core Information
- Company Name: China Display Opt (CDOT)
- Industry: Display modules for small-to-medium-sized displays
- Business Model: R&D, manufacturing, and sales of LCD modules for handheld mobile devices on an ODM basis
- Geographic Reach: Operations throughout Asia; global sales
- Shareholding: Shenzhen China Star holds 65.05% of the shares
- Current Price: HK$0.64
- Target Price: HK$1.16 (unchanged)
- Potential Upside: 81%
- Rating: BUY
Key Data
| Metric |
Value |
| 12 Months High (HK$) |
1.28 |
| 12 Months Low (HK$) |
0.44 |
| 3M Avg Daily Volume (mn) |
0.95 |
| Issue Share (mn) |
2,086.72 |
| Market Cap (HK$mn) |
1,335.50 |
| Fiscal Year |
12/2017 |
Recent Developments
- TCL Group's Share Increase: TCL Group increased its stake in CDOT by 260 million shares or 12.46%, bringing the total to 65.05%.
- Acquisition Details: The shares were acquired at an average price of HK$0.843, representing a 33% premium to the previous day's closing price.
- New Client: CDOT secured a new client from a Korean smartphone brand in September 2018, contributing ~RMB400 million in orders in that month.
- Record Revenue: CDOT reported a record high quarterly revenue of RMB1,290 million in 3Q18, driven by the new client.
Financial Performance (FY16A to FY20E)
| Metric |
FY16A |
FY17A |
FY18E |
FY19E |
FY20E |
| Revenue (RMB mn) |
3,678.2 |
3,464.6 |
4,725.0 |
8,537.1 |
9,693.9 |
| Revenue Growth (%) |
64.0 |
(5.8) |
36.4 |
80.7 |
13.6 |
| Adj. Net Profit (RMB mn) |
91.1 |
115.7 |
46.5 |
221.6 |
249.9 |
| Adj. Net Profit Growth (%) |
25.5 |
27.0 |
(59.8) |
376.1 |
12.8 |
| Diluted EPS (HK$) |
0.054 |
0.071 |
0.027 |
0.129 |
0.145 |
| EPS Growth (%) |
2.3 |
32.0 |
(62.0) |
376.1 |
12.8 |
| P/E (x) |
10.4 |
7.9 |
25.9 |
5.4 |
4.8 |
| P/B (x) |
2.6 |
2.0 |
2.3 |
1.6 |
1.3 |
| Yield (%) |
3.6 |
3.6 |
1.1 |
5.2 |
5.8 |
| DPS (HK$) |
0.026 |
0.020 |
0.008 |
0.036 |
0.041 |
Key Financial Highlights
- EPS Growth: From FY18E to FY21E, the EPS CAGR is 77.6%.
- Net Margin: Improved from 1.0% in FY18E to 2.6% in FY19E and 2.6% in FY20E.
- Operating Margin: Increased from 1.4% in FY18E to 3.4% in FY19E and 3.4% in FY20E.
- Gross Margin: Fluctuated between 4.2% in FY18E to 5.8% in FY19E and 6.1% in FY20E.
- ROE: Increased from 9.2% in FY18E to 36.0% in FY19E and 30.7% in FY20E.
Risks
- Unsatisfactory product delivery for the new client
- Slower than expected ramp-up of Wuhan factory
- Higher-than-expected ASP (Average Selling Price) pressure in LCD module market
Peer Group Comparison
| Company |
Ticker |
Price (HK$) |
Mkt Cap (US$m) |
3-Month Avg T/O (US$m) |
P/E (x) |
P/E FY1 (x) |
P/E FY2 (x) |
EPS FY1 YoY% |
EPS FY2 YoY% |
Div Yield CAGR (%) |
EV/EBITDA (%) |
EV/EBITDA Gearing (%) |
Net Gross Margin (%) |
Net Net Margin (%) |
Net ROE (%) |
| China Display Opt |
334 HK |
0.64 |
170 |
0.1 |
9.8 |
25.9 |
5.4 |
(62.0) |
376.1 |
26.8 |
0.97 |
2.9 |
1.1 |
0.9 |
5.6 |
| HSI |
- |
25,416.00 |
- |
- |
9.6 |
10.6 |
9.6 |
(9.6) |
11.1 |
3.3 |
3.18 |
2.6 |
1.1 |
0.9 |
3.9 |
| HSCEI |
- |
10,279.32 |
- |
- |
7.7 |
8.0 |
7.2 |
(3.1) |
10.8 |
5.5 |
1.44 |
4.3 |
1.0 |
0.9 |
4.3 |
| CSI300 |
- |
3,177.03 |
- |
- |
11.7 |
11.0 |
9.6 |
6.6 |
14.8 |
- |
- |
2.5 |
1.5 |
1.4 |
2.5 |
| Adjusted Sector Avg |
- |
- |
- |
- |
12.8 |
12.3 |
9.8 |
3.9 |
21.2 |
- |
- |
- |
- |
- |
- |
Analysts and Recent Reports
- Analysts: Yuji Fung and Dallas Cai
- Recent Reports (as of 01/11/2018):
- 30/10/2018: Revised up full year shipments target
- 26/10/2018: New client order lifts Sept shipments to record high
- 12/10/2018: Upbeat September handset-related shipments
- 09/10/2018: 1H18 results in line with expectations
- 04/09/2018: 1H18 results in line
- 27/08/2018: 1H18 results in line with expectations
- 23/08/2018: 1H18 results up to expectations
- 15/08/2018: 1H18 results in line
- 09/08/2018: 1H18E profit warning
Historical Recommendations
| Date |
Rating |
Target Price (HK$) |
Close Price (HK$) |
| 20 Jan 2017 |
BUY |
1.06 |
0.68 |
| 22 Mar 2017 |
BUY |
1.34 |
0.96 |
| 12 Jul 2017 |
BUY |
1.50 |
1.33 |
| 08 Aug 2017 |
BUY |
1.55 |
1.09 |
| 27 Mar 2018 |
BUY |
1.20 |
0.78 |
| 25 Apr 2018 |
BUY |
1.20 |
0.67 |
| 26 Aug 2018 |
BUY |
0.67 |
0.50 |
| 14 Sep 2018 |
BUY |
1.13 |
0.56 |
| 26 Oct 2018 |
BUY |
1.16 |
0.59 |
Summary of Main Points
- Business Turnaround: CDOT is showing signs of business turnaround, with a new Korean client and record revenue in 3Q18.
- TCL Group's Confidence: TCL Group's significant share increase reflects confidence in CDOT's future performance and earnings potential.
- Financial Performance: Revenue and net profit are projected to grow significantly in FY19E, with a substantial EPS growth of 376.1%.
- Valuation: The current P/E ratio is 5.4x, which is below the historical average and indicates potential upside.
- Risks: Potential risks include unsatisfactory product delivery, slower factory ramp-up, and higher ASP pressure.
Conclusion
The report reiterates a BUY rating for CDOT with an unchanged target price of HK$1.16. The company is expected to benefit from the new client and continued sales growth, leading to a significant improvement in earnings. The current valuation suggests an 81% upside potential, and the analysts remain optimistic about the company's future performance. However, there are risks that need to be monitored, including product delivery and market conditions.