What's new
Regina Miracle (RM) announced on March 15, 2022 that Regent Marvel Investment Holdings Limited (Regent Marvel), a controlling shareholder of the firm, which is wholly owned by Mr. HUNG Yau Lit, the chairman, executive director and chief executive officer of the firm, entered into a placing agreement with the Hongkong and Shanghai Banking Corporation Limited (HSBC). Regent Marvel agreed to place through HSBC 60mn shares of the firm at a placing price of HK$5/sh, representing 4.9% of the existing issued share capital of the firm. The firm expects the placing to be completed on 17 March, 2022.
Comments
Share placing helps to enhance the liquidity of the firm’s stock. Prior to the placing, Regent Marvel held 708mn shares of the firm, representing 57.83% of the total share capital. After the completion of the placing, Regent Marvel would hold 648mn shares, accounting for 52.93% of the total share capital. Mr. HUNG Yau Lit would personally own a total of 836mn shares, accounting for 68.29% of the total share capital. The public float of the firm would increase from 328mn shares to 388mn shares, accounting for 31.71% of the total share capital.
Planning to invest HK$300mn in placing proceeds in building Zhaoqing plant. The firm intends to spend HK$300mn in placing proceeds on the construction of the Zhaoqing plant. The first phase of Zhaoqing plant has already started construction, and the firm expects to put it into operation in 4Q23. The firm plans to move its factory in Shenzhen to Zhaoqing and lease the production base from its major shareholder.
Downstream orders ample; impact from domestic and overseas COVID-19 conditions manageable. We expect the firm’s quarterly orders to grow QoQ due to growing downstream demand and ample orders. By region, the firm’s employees in Vietnam have received 2-3 doses of COVID-19 vaccines, and we see shorter COVID-19 quarantine periods and improved attendance of staff. Despite the production halt at the Shenzhen factory for a week starting from March 14 due to COVID-19 resurgence, we think the overall impact is manageable, given that the domestic output value accounts for only about 20% of the firm’s total output, and staff in the factory can arrange the shipment of finished products in inventory.
Financials and valuation
The firm has optimized its client structure and seen sustained strong growth in revenue. We expect improving economies of scale in production and reduced capex and depreciation expenses to boost the firm’s profitability. We keep our FY22-24 earnings forecasts unchanged. The stock is trading at 9x FY23e and 7x FY24e P/E. We maintain our OUTPERFORM rating and TP, implying 15x FY23e and 12x FY24e P/E with 63.2% upside.
Risks
Lower-than-expected output due to COVID-19; disappointing growth in orders from core clients and/or JV operation; fluctuating FX rates.