Hong Kong equity market is seemingly delivering a sustainable rebound, thanks to the attractive valuation and the fund flow from overseas back to HK. We expect the high beta plays to outperform, especially the cyclical names. Haitian is the best pick in our sector on the back of its attractive valuation, great globalisation strategy, solid cash flow and holding, as well as possible demand recovery in domestic market. We reiterate BUY rating on Haitian.
Key Factors for Rating
Haitian stands out in the recent earnings announcement by showing the great global expansion strategy. Compared to other private enterprises which are just starting to set up the distributions in overseas market, Haitian rolls out the Global 2.0 plan to build production capacity overseas on top of the mature distributions. Haitian clearly names Singapore as the second global head office and six global operation centres. The 2.0 global plan would much help balance the sales mix by geography. In addition, Haitian targets at locations with competitive cost to expand the capacity, including Malaysia, Mexico, and Serbia, to cover the market in developed counties. Thus CAPEX spending is cost efficient.
Overseas demand recovery comes a bit later than expected due to the delay in US$ interest rate cut. Yet, we expect overseas sales would recover in no later than 2025. Domestic market witnesses new order recovery in March. With the incentives of trade-in subsidy on home appliances and autos, the demand for PIMM would likely recover.
Haitian trades at 12.4x 24E P/E, attractive as the success of global expansion would deserve 15-20x 24E P/E. With solid fundamentals, wise global expansion strategy, and attractive valuation, Haitian would become the best Beta play within our coverage.
Key Risks for Rating
Some sectors are facing lower pricing trend amid the weak demand and high competition of supply. It might also be a concern for PIMM in the domestic market.
Valuation
We retain earnings estimate and TP unchanged. Haitian is the best pick in industrial sector. We reiterate BUY rating, with 17% upside.