20220330-招银国际-通达集团-00698.HK-Emerging_growth_drivers_to_fuel_recovery_in_2H22E_7页_1mb

Tongda Group (698 HK) Summary

Core Content

Tongda Group (698 HK) is a company in the global markets sector, primarily involved in manufacturing components for consumer electronics, including smartphones, household goods, and network communication equipment. The company has faced challenges in FY21 due to a decline in smartphone demand and lower gross profit margin (GPM), but is expected to recover in the second half of 2022 (2H22E) with significant growth in non-handset casing segments and key orders from major clients.

Main Points

• Performance in FY21:

  • Revenue grew by 2.2% YoY to HK$9.97 billion.
  • Net profit declined by 35% YoY to HK$228.2 million.
  • Handset casing revenue dropped by 3.7% YoY to HK$7.28 billion, while non-handset casing segments, such as Apple, household & sports, and network communication, showed strong growth.

• Key Growth Drivers:

  • iPhone 14 Components: Increased share in iPhone 14 casing.
  • Meta's LSR Order Win: Gaining market share in Meta's AR/VR components.
  • CATL's Aluminum Parts: Expanding into new energy battery segments.

• Segment Performance:

  • Non-handset casing: Delivered solid growth at 22% YoY, with Apple, household & sports, and network comm. contributing significantly.
  • Household and Sports Goods: Revenue increased by 40.8% YoY to HK$1.14 billion, driven by new customers like OXO and Joseph.
  • Network Communications: Revenue grew by 43.9% YoY to HK$1.01 billion, with strong demand from automotive and other sectors.
  • Smart Electrical Appliances Casings: Declined by 22.1% YoY due to weak housing market.

Key Information

• Earnings Recovery: Expected 92% YoY growth in net profit for 2H22E.
• Valuation: The stock is currently trading at a historical low of 3.1x forward P/E, with a new target price (TP) of HK$0.23, representing a 53% upside.
• Catalysts: Meta's product launch and increased share in iPhone 14 components are major catalysts for future growth.
• Outlook: Management expects revenue to reach HK$10 billion in 2022, with a focus on new energy vehicles, household goods, and Meta's AR/VR market.

Earnings and Financial Highlights

Valuation and Investment Outlook

• Target Price: HK$0.23 (53% upside from current price of HK$0.15).
• Current Valuation: At 3.3x FY22E P/E, which is well below historical averages.
• CMBIGM Rating: BUY.
• Industry Outlook: Expected to outperform the relevant market benchmark.

Shareholding and Market Data

• Market Cap: HK$1.458 billion.
• Shareholders:
  • Landmark Worldwide: 24.44%
  • Ya Nan Wang: 11.68%
  • Dimensional Fund: 2.24%
• Share Performance:
  • 1-month: +7.9%
  • 3-months: -33.1%
  • 6-months: -35.7%

Financial Summary

• Operating Cash Flow: Positive in FY20 and FY21, but expected to decrease in FY22E due to capital expenditures.
• Capital Expenditure (Capex): Expected to decline by 40–50% YoY.
• Balance Sheet:
  • Total assets: Expected to increase from FY20 to FY24.
  • Total liabilities: Expected to remain stable or slightly increase.
  • Shareholders' equity: Expected to grow, with reserves increasing from FY20 to FY24.

Key Ratios

• Gross Margin: Expected to improve from 16.5% in FY21 to 18.1% in FY24.
• Operating Margin: Expected to increase from 3.2% in FY21 to 5.5% in FY24.
• Net Profit Margin: Expected to increase from 2.3% in FY21 to 4.3% in FY24.
• Current Ratio: Expected to increase from 1.2 in FY21 to 1.5 in FY24.
• Inventory Turnover Days: Expected to increase slightly from 118 to 137 days.

Analyst Certification and Disclaimers

• The analyst certifies that the views expressed reflect personal opinions and that there are no conflicts of interest.
• The report is not tailored for individual investors and does not guarantee future performance.
• Investors are encouraged to consult with a financial advisor before making investment decisions.