东江集团控股(02283.HK)：Smart device stodrive earnings growth

机构：信达证券评级：买入目标价：7.53港元In-line FY 17 result but GM surprise on the upsideThough TK’s FY17 result was generally in-line with both market consensusand our estimates (with revenue grew 14.4% to HK$1,860mn, while net profitattributable to shareholders soared 46.7% to HK$302mn, driven by GMexpansion in both business segments. GM expanded 560bps to 33.7% (arecord high throughout the track record period), which was 80bps/120bpsabove market and our estimates. The GM beat was driven by i) betteroperating efficiency through automation (700bps impact), and Euroappreciation (200 bps impact on GM) which led to mold fabrication GM soared900bps to 37.4% and ii) Utilization rate improvement in plastic injectionsegment (up 960bps Yoy). We continue to see TK’s GM still possesses anupside due to: i) TK’s automobile segment order backlog to driveultra-large molds revenue (GM at 30%-40%), ii) Utilization andautomation enhancement in both mold fabrication and plastic injectionsegments; iii) strong order backlogs from mobile phones & wearables,medical & health devices, and smart home device (togther withautomobile backlog, accounted for 67% of total at ~HK$800mn). In viewof strong order backlogs, we see TK’s revenue guidance of ~20% growth inFY18E could be achieved.Smart home segment picked up in 2H17, growth momentumcontinues in FY18ESmart home revenue soared 132% Yoy to HK$210mn (11.3% of total revenuevs. 5.6% in 1H17), as consolidation between Google Home and Nest hasbeen completed, segment revenue came in at ~HK$166mn (vs. RMB 44.8mnin 1H17), up 304% Yoy and accounted for 79% of total segment revenue).Together We believe smart home segment growth in FY18E would be wellabove group level.Consumer electronics, healthcare and medical devices continue todrive plastic injection GM; Seeking M&A opportunities for future growthWe expect utilization rate would continue to further improve in FY18E drivenby smartphone & wearables (US renowned clients’ launch of new flagships in2H18E, and new accessories/projects as being rumoured in market recently,e.g. New earphones and wireless charging products), healthcare & medicaldevices, together with stable procurement cost (in RMB), we expect theplastic injection segment GM to stay >30% in FY18E. TK’s guidance onFY18E CAPEX would be ~HK$230mn, which will be mainly used in capacityexpansion and production automation. In view of customers’ order demand,TK is seeking various ways to further expand their capacity, e.g. to build new/rent production sites, and also to look at M&A opportunities.Maintain BUY on FY18E 13.1x PE, fundamentals remains solidWe raised TK’s FY18E EPS by 14.8% and introduced FY19E EPS. TK istrading at FY18E 13.1x PE ( ~15% discount to Hong Kong and internationalpeers), with TK’s EPS growth at 22.6% CAGR in FY17-19E) driven by existingclients’ product pipeline, ramp up of new clients’ order as well as GMexpansion. We raised TK’s TP from HK$4.34 to HK7.53 which translates toFY18E 15.8x PE (vs. 10.4x PE in our last update in Aug 2017, and par topeers on its decent track record, and healthy financial position to financeCAPEX), we expect TK would be able to maintain dividend payout ratio>40%, its 3.6%/4.2% dividend yield in FY18E/19E continue to make it a gooddefensive play, we reiterate TK’s rating at BUY.