Main points of investment
The annual performance is basically stable, and the high dividend shows confidence. Operating income rose 1.27 per cent year-on-year to HK $1.626 billion; gross profit margin rose to 28.06 per cent from 26.08 per cent in the same period last year; net profit increased by 12.65 per cent to HK $205.69 million and EPS was HK25 cents. A final dividend of HK10 cents per share is proposed (plus the interim dividend of HK4 cents, the cumulative dividend for the whole year is HK14 cents, with a dividend yield of 56 per cent and a corresponding dividend ratio of about 5.83 per cent). The company's performance remained basically stable in 2016, with a high dividend payout rate of 56% demonstrating confidence.
The downturn in consumption is a drag on revenue growth, and the rise in gross profit margin boosts performance. Affected by the relatively depressed consumer atmosphere, revenue from home appliances and electronic equipment has fallen sharply. We have noticed that the company's continuous investment in automated production lines has improved production efficiency, increasing the gross profit margin of injection molding components from 26.4% last year to 27.8% this year, to some extent, making up for the impact of slowing revenue growth on operating profits. with the improvement of the company's degree of automation, there is still room for improvement in the level of gross profit margin.
Currently, there are plenty of orders on hand, and revenue growth is expected to pick up in 2017. By the end of 2016, orders-on-hand increased by 6.9% over the same period last year. The company's existing diversified customer base will launch a new product plan in 2017, which will bring abundant expected orders to the company. The company has received orders for new models from smartphone customers, which is expected to lead to steady growth in the mobile wearable sector. At the same time, the smart home industry is booming and is expected to enter the track of rapid growth. Management expects the company's revenue to maintain low double-digit growth in 2017.
Our view: the products controlled by Dongjiang Group have diversified characteristics. The introduction of industrial 4.0 flexible production line can improve production efficiency and stable product quality, and contribute to the steady increase of gross profit margin. We expect the company to maintain revenue growth of 13-15% in 2017. The high dividend in 2016 shows the company's confidence in the future, with a dividend yield of 5.8%. Investors are advised to pay close attention.
Risk tips: sluggish demand, falling orders; intensified competition, falling gross margins of some products.