20151117-光大证券-俊知集团-01300.HK-Value_Emerges_16页_180kb

Trigiant Group Summary

Core Content

Trigiant Group (1300 HK) is a leading manufacturer in China for RF coaxial cables, flame-retardant flexible cables, new-type electronic components, and optical fibre cables, serving major telecom operators and equipment manufacturers. The company is positioned to benefit from the increasing demand for data services and the ongoing expansion of telecom networks in China. Despite a decline in earnings in 2015, the report anticipates a recovery in 2016 and continued growth in 2017, with the optical fibre cable segment expected to be a key driver of future performance.

Main Points

Market Position

• Trigiant Group is a top PRC manufacturer of RF coaxial cables and related telecom products.
• Ranked no. 1 in sales volume for five consecutive years (2010-14).
• Key customers include China Mobile, China Unicom, China Telecom, ZTE, and Huawei.

Market Trends

• Domestic demand for telecom services remains strong, especially for data services.
• Mobile telephone users have grown steadily, with penetration rates exceeding 95% in China.
• The shift from voice to data services is expected to drive continued investment in telecom infrastructure.

Product Diversification

• In late 2014, Trigiant acquired a fast-growing optical fibre cable manufacturer, expanding its product portfolio.
• Optical fibre cable is expected to account for 30% of total turnover by 2017.
• The company's product lines include RF coaxial cables, flame-retardant flexible cables, new-type electronic components, and optical fibre cables.

Financial Performance

• Revenue growth was 10.2% in 2014 and 13.7% in 2015, with a projected 9.6% growth in 2016 and 9.7% in 2017.
• Net profit declined by 7.2% in 2015 but is expected to resume growth in 2016.
• Earnings per share (EPS) for 2015E is Rmb 0.22, with a projected increase to Rmb 0.24 in 2017E.

Valuation

• Current share price is HK$1.55, with a target price of HK$1.89, representing a 23.7% upside.
• The target price is based on a 30% discount to its 3-year average price-to-book ratio, equivalent to 0.9x 2015E PB.
• The company is recommended to "Initiate Buy" due to its attractive valuation and growth prospects.

Key Financial Metrics

Key Risks

• Price fluctuations of raw materials: Copper accounts for over 95% of the cost of sales, making the company vulnerable to price changes.
• Reliance on major customers: The top three customers account for over 85% of total turnover, with the largest customer representing over 40%.
• Keen competition: The telecom equipment industry is highly competitive, both domestically and globally.
• Slowing investment in telecom networks: Uncertainties in the PRC economy may lead to reduced investment in network infrastructure, impacting profitability.

Financial Highlights

• Operating Expenses-to-Turnover Ratio: Reduced from 5.7% in 2013 to 4.7% in 2014.
• Gross Margin: Expected to decrease marginally due to the lower margin optical fibre cable segment.
• Net Profit Growth: Expected to resume in 2016 with a 5.3% growth rate and continue at 5.3% in 2017.
• Capital Expenditure: Capacity expansion on track, with optical fibre cable production reaching 11 million fibre kilometres in 1H15.

Investment Recommendation

• Initiate Buy: Based on the anticipation of earnings recovery in 2016 and attractive valuation metrics.
• Valuation Comparison: Trigiant Group is undervalued compared to industry peers, with a P/B ratio of 0.6 in 2017E and a target of 0.9x 2015E PB.

Conclusion

Trigiant Group is well-positioned to benefit from the continued growth in China's telecom industry, driven by increasing demand for data services and network expansion. Despite a challenging 2015, the company's diversified product portfolio and strategic acquisitions suggest a promising future. The report recommends initiating a buy position due to its attractive valuation and growth potential. However, the company is exposed to several risks, including raw material price fluctuations, customer concentration, and industry competition, which must be considered in investment decisions.