The Kiley Industrial Group is primarily engaged in the manufacture and sale of sports bags, handbags and luggage. The company released FY22 results. Revenue rose 48.6% year-on-year to $2.18 billion, and net profit rose 165% to $1,035 million, in line with Yushi's 160-165% year-on-year level. Management attributed strong demand in North America and Europe (about 58% of total revenue). THE COMPANY PROPOSES A FINAL DIVIDEND OF 4.2 HK CENTS PER SHARE, WITH A DIVIDEND YIELD OF APPROXIMATELY 59% AND A DIVIDEND YIELD OF APPROXIMATELY 5.5%.

The ratio of sales and distribution and administrative expenses to sales decreased from 19.3% in FY21 to 13.2% in FY22. Although the gross margin decreased from 21.3% to 18.6% (the increase in raw materials and labor costs cannot be offset by the increase in the average selling price), the net profit margin increased from 2.7% to 4.7%, mainly due to lower sales and distribution and administrative expenses (strict cost controls).

Net cash level. The company's financial position remains stable, with net cash of approximately $4,400 million. With a sound financial situation, the company can maintain its dividend ratio.

Sales are expected to grow by mid-single digits between 22 and 25 years. More than 70% of the company's revenue comes from the outdoors and sports.

After the pandemic, the public will participate in more outdoor activities, and in the period 22-25E, the company's sales volume can be about 6%

Year-over-year growth rate.

Stable relationship with existing customers. The company's customers include Nike, Adidas, UnderArmour, etc., and the company has a partnership with existing customers for more than 15 years. Looking ahead, management aims to add one new customer per year from 23E to 25E.

The fair value is HK$1.05, which corresponds to 15 times the expected market earnings of 23 times the company's solid performance in FY 2022. In the long run, the company is expected to benefit from more people participating in outdoor activities after the pandemic. However, sales of 23E are worrisome as recession risks increase in North America and Europe, while management has indicated that customers have recently become more conservative in providing order estimates. The stock code is trading at 11x 23x market earnings, ~24x below the 3-year average. The fair value of the shares is HK$1.05, about 15 times the 23-year market earnings (industry average).