New high-quality client wins (Tesla/Apple new product/FacebookVR products) to drive 27% FY16-18E EPS CAGR
Fine-tuned FY16E EPS by -2% mainly on lengthened productlaunch cycle amid weak macro despite GPM recovery on track
Attractive valuation with 30%+ ROE/ 6% div. yield. Maintain BUYwith new TP of HK$2.57, based on 8.7x FY16E P/E (in-line w/ peers)
FY15 largely in-line despite ST margin pressure
TK reported strong FY15 results with revenue/ net profit growth of20%/22% to HK$1.6bn/ HK$187mn, in-line with our/ consensusestimates. GPM came in at 26.1%, down 1.6ppts, slightly missed our/consensus forecasts given larger-than-expected molding GPM decline (-8.9ppts to 25.4%) although plastic components GPM climbed 3.9ppts to26.4%. TK raised FY15 dividend payout ratio to 44% vs. 38% in FY14.
Positive on LT outlook given new Silicon Valley names win
We lowered TK’s FY16E EPS by -2% to reflect more conservativeestimates on mobile/ wearables and electrical appliances growth of+15%/+3%YoY as customers have lengthened new product launch cycleamid weak macro environment, offsetting new segment growth includingsmart home devices (Nest) and automobile (Volkswagen). However, webelieve GPM recovery is on track. We raised FY16-17E GPM by 0.1ppt/0.2ppt on 1) improving ultra-large automobile molding utilization to drivemargin and 2) lower production cost with fully automated precisionmolding production line (TK spent HK$23mn in FY15 on improvingautomation). We remain positive on TK’s LT outlook and expect itsrevenue/EPS to grow at 15%/27% CAGR during FY16E-18E, given 1)U.S. electric car leader order win (Tesla), 2) new product for Apple’s nextgeniPhone and 3) VR product on the way (Facebook).
High ROE/ dividend payout to continue. Maintain BUY
We continue to like TK for its solid long-term growth outlook given strongand well-diversified client base, high ROE (30%+), as well as highdividend payout at 40%+ (FY16E yield 5%). We maintain BUY with newTP of HK$2.57, based on sector average 8.7x FY16 P/E. Key risksinclude losing major customers and product launch delay.