MOULDING A SOLID FUTURE
Leading mould and plastic component manufacturer serving marketleaders across diverse industries. As a leading manufacturer of mouldand plastic components, TK’s ability to manufacture high qualitymoulds allows it to serve a large variety of industries. This ranges fromfast growing sectors such as mobile & wearable, healthcare and autoparts, to the more stable telecommunications equipment and homeappliance brands. TK positions itself at the high end as it aims to workwith the leaders of the industry on higher-margin products which aretechnically more challenging to make. Case in point would be clientslike Apple, Polycom, Fitbit, Philips, ABB, Electrolux and Whirlpool.
A prime example of China’s directive to upgrade its manufacturingcapability and technology. As a leading manufacturer, TK has beenon a path of increasing automation and technical improvement,positioning itself away from the more commoditized segments of themarket. This coincides with the Chinese government’s ChinaManufacturing 2025 and current industry aims to achieve Industrial4.0 standards. TK possesses deep technical knowledge and reputableclientele to execute on this vision. This ability to do this allows thecompany to be more selective in choosing higher-margins projectsand sectors to participate in.
Multi-pronged strategy for growth. TK’s clients are leaders and aregrowing in their respective industries. TK’s own capacity expansion inFY14 will also contribute to growth. Driven by these key sectors suchas mobility & wearable, health & medical and automobiles, we expectTK to post 20% and 17% sales growth rates in FY15-16F respectively.The company's status of high technology enterprise granted in late2014 will also lower its effective tax rate and aid margins, which leadsto 30% profit growth in FY15F and 18% profit growth in FY16F.
Valuation:
Given the robust growth, we believe the current valuation of c.8xFY16F PE is attractive vs peers. Initiate with a BUY with TP at HK$3.50pegged to FY16 PE of 12x.
Key Risks to Our View:
Customers' performance a key. TK’s success is linked with itscustomers’ success. If the company's key customers perform poorlyin their respective markets, TK’s orders will also be adversely impacted,creating volatility in the company’s performance.