Started supplying RF Coaxial cable for China Mobile's 4G base stations
Flame retardant flexible cables a long-term driver
Valuation is undemanding at 5x FY13 PE, offering 4% yield
Fair Value: 12-Month HK$3.60 (Prev HK$3.30)
Riding on 4G network installations. Trigiant started supplying RF Coaxial cables to China Mobile's TD-LTE base stations which are under construction. It supplied 4,000km of the cables to CM's 4G network last year, which translates into 1/3 market share. CM is constructing 200,000 4G base stations in FY13 - this will drive Trigiant's FY13 earnings growth. Management is confident of gaining market share from 25% currently, driven by accelerating 4G installations.
Flame retardant flexible cables a long-term driver. Growth in FY12 was driven by new contribution from flame retardant flexible cables, accounting for 14% to group revenue. Currently, Trigiant cross sells this product to China Telecom and China Unicom by leveraging on its existing distribution network with the telecom operators. This product is also used in the utility, oil & gas and marine engineering sectors, which present long-term growth potential.
Increasing investor interest. In FY12, revenue and net profit grew a respectable 22% to Rmb2,231m and Rmb252m, respectively. Gross margin expanded by 1.6ppt to 23% due to a change in product mix. We forecast earnings will grow 29% and 13% this and next year. The stock is currently trading at 5x FY12 PE and offering a 4% dividend yield. Our fair value is HK$3.6, pegged to 8x FY14 PE. Its undemanding valuation and growth potential from 4G development is drawing more investor interest.