20220811-招银国际-FIT_HON_TENG-06088.HK-Strong_1H22_in-line__Positive_outlook_on__3+3_strategy__6页_1mb

Summary of FIT Hon Teng (6088 HK)

Core Content

FIT Hon Teng reported strong performance in the first half of 2022 (1H22), with a net profit of US$85 million, representing an 844% year-over-year (YoY) increase. This result was in line with the earlier positive profit alert of US$80-90 million. The company's success was attributed to the effective execution of its "3+3 Strategy," which includes segments such as EV, 5G AloT, and Audio. This strategy has led to a better product mix and higher average selling price (ASP), contributing to growth across all segments despite macroeconomic uncertainties and weak demand concerns.

The revenue for 1H22 increased by 6% YoY, driven by growth in smartphone (27%), system products (17%), and EV mobility (13%) segments. Networking revenue declined by 19.2% YoY due to chip shortages affecting optical module shipments. However, the gross margin (GPM) improved to 16.7%, matching the pre-pandemic level of 16.7% (compared to 16.2% in 2H21).

The company maintains a "BUY" rating with a target price (TP) of HK$1.78, which is 53.4% upside from the current price of HK$1.16. The TP is based on a 10x FY22E P/E ratio, which is 1 standard deviation below the historical average. The current P/E ratio is 6.5x for FY22E and 5.7x for FY23E, indicating an attractive risk-reward ratio.

Key Financial Highlights

Revenue

• FY20A: $4,314.7 million
• FY21A: $4,490.2 million
• FY22E: $4,671.8 million
• FY23E: $5,107.6 million
• FY24E: $5,635.0 million
• YoY growth: 4.0% (FY22E), 9.3% (FY23E), 10.3% (FY24E)

Net Profit

• FY20A: $42.6 million
• FY21A: $136.8 million
• FY22E: $155.1 million
• FY23E: $178.0 million
• FY24E: $208.3 million
• YoY growth: 12.0% (FY22E), 14.8% (FY23E), 17.0% (FY24E)

EPS (Reported)

• FY20A: $0.64
• FY21A: $2.04
• FY22E: $2.28
• FY23E: $2.62
• FY24E: $3.07
• YoY growth: 12.0% (FY22E), 14.8% (FY23E), 17.0% (FY24E)

P/E Ratio

• FY22E: 6.5x
• FY23E: 5.7x
• FY24E: 4.9x

P/B Ratio

• FY22E: 0.4x
• FY23E: 0.4x
• FY24E: 0.4x

ROE

• FY22E: 6.1%
• FY23E: 6.7%
• FY24E: 7.3%

Revenue Breakdown by Segment

• Computing: $853,610 million (FY21), expected to grow by 5% in FY22E and FY23E.
• Smartphones: $1,282,791 million (FY22E), with 1% YoY growth in FY22E.
• Networking: $846,137 million (FY22E), expected to grow by 10% in FY23E.
• EV Mobility: $161,616 million (FY22E), with 20% YoY growth in FY22E.
• Systems Products: $1,317,012 million (FY22E), expected to grow by 15% in FY23E.
• Others: $210,683 million (FY22E), with 5% YoY growth in FY22E.

Outlook and Catalysts

The company is optimistic about the "3+3 Strategy" continuing to bear fruit in the second half of 2022 (2H22E), with strong product pipelines and interconnection solutions for next-gen smart devices, micro speaker components, and demand from EV/e-bike applications. The management expects the "3+3" revenue mix to increase to 31% in FY23E from 16% in 2021.

Upcoming catalysts include the launch of the iPhone 14, new product launches from Belkin and EV segments, potential mergers and acquisitions (M&A), and improving margins. These factors are expected to drive future growth and performance.

Valuation and Market Position

The company is currently trading at a 12-month forward P/E of 6.5x (FY22E) and 5.7x (FY23E), which is significantly below the historical average. The TP of HK$1.78 reflects a 10x P/E multiple on FY22E earnings, and the risk-reward ratio is considered extremely attractive.

In comparison with peers, FIT Hon Teng is positioned favorably with a low P/B and a high potential return. The company's P/E and P/B ratios are lower than many of its competitors, which may indicate undervaluation.

Shareholding and Financial Health

• Shareholding Structure:

  • Foxconn Far East Ltd: 71.3%
  • Lu Sung-Ching: 5.8%

• Financial Ratios:

  • Current Ratio: 1.6x (FY22E)
  • Receivable Turnover Days: 74.1 days (FY22E)
  • Inventory Turnover Days: 94.1 days (FY22E)
  • Payable Turnover Days: 102.7 days (FY22E)

The company maintains a stable current ratio, indicating good liquidity. Receivable and inventory turnover days are within reasonable ranges, suggesting effective working capital management.

Analyst Ratings and Disclosures

• CMBIGM Rating: BUY
• CMBIGM Ratings:
  • BUY: Potential return of over 15% over next 12 months
  • HOLD: Potential return of +15% to -10%
  • SELL: Potential loss of over 10%
  • 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

The report includes important disclosures regarding the risks involved in trading the company's securities and the analyst's independence. It is important to note that the report is not tailored to individual investors and should be used as a general reference.

Conclusion

FIT Hon Teng is showing strong performance in 1H22, driven by the successful execution of its "3+3 Strategy" and improved margins. Despite challenges in the networking segment due to chip shortages, the company's growth in other segments has offset these issues. The company's financials suggest a solid position, with an attractive valuation and potential for future growth. The "BUY" rating reflects confidence in the company's ability to deliver returns over the next 12 months.