Lowered FY15E EPS by 10% mainly on molding (for automobile)margin cut and lack of new product launch in 2H15. Expect marginrecovery in FY16E-17E with EPS above consensus by 1-6%
New opportunities from smart home/drone/automobile emerged.Poised to achieve 21%/27% revenue/EPS CAGR in FY15E-17E
Remain positive on strong client portfolio/product cycle. MaintainBUY with new TP HK$2.81, based on 9.3x FY16E P/E (sector avg.)
Earnings cut on lower FY15E margin and Polycom growth
Following recent meeting with management, we cut FY15E-17E EPS on1) FY15E GPM pressure (blended GPM to decline 0.7ppt YoY to 26.9%)amid higher ramp-up cost rerlating to ultra-large molding (automobile),and 2) more conservative telecom. equipment (Polycom) revenue growthat 9% CAGR during FY15E-17E (vs. prev. est. at 13%), with revenuecontribution lowered to 17.5% in FY17E vs. 23% in 1H15.
High ROE (30%+) to continue on new order wins
We expect TK revenue/EPS to grow at 21%/27% CAGR during FY15E-17E with sustainable high-ROE at 30% above, thanks to 1) order winsfrom automobile (Volkswagen)/ smart home (Nest)/ drone (GoPro), 2)margin recovery with ultra-large molding ramp-up (blended FY17E GPMto reach 28.6% vs. 26.9% in FY15E) and 3) two new product lines to beadded in FY16E (evidenced by 50% capex guidance raise toHK$120mn). Our FY16E-17E NP is 1-6% above consensus as we aremore positive on TK automobile outlook in FY16E-17E given order winsfrom German auto leaders, leveraging on the newly acquired S&BCompany (Germany), and another tier-one auto maker is in talks with TKto set up a JV in India.
Maintain BUY with new TP of HK$2.81 (32% upside)
We remain positive on TK long-term growth outlook given strong andwell-diversified client portfolio, as well as high dividend payout at 35%+(FY16E yield 5%). Despite short-term margin pressure on automobileramp-up, we maintain BUY with new TP of HK$2.81, based on sectoraverage 9.3x FY16 P/E. Key risks include losing major customers,product launch delay and M&A integration.