Main points of investment
The interim results were basically flat, and the gross profit margin increased slightly. Dongjiang Group Holdings (2283.HK) announced its mid-term operating results on August 12: operating income fell 1.66 per cent year-on-year to HK $721 million; gross profit increased 3.8 per cent to HK $190 million; gross profit rose to 26.4 per cent from 25.0 per cent in the same period last year; net profit rose 10.9 per cent to HK $78.88 million per share, with a recommended dividend of HK4 cents per share. The company's mid-2016 performance remained basically stable, better than market expectations.
Falling revenue from mobile phones and wearable products is a drag on revenue growth. Demand for high-end electronics consumption has declined due to the global and Chinese economic slowdown. According to the industry of the company's products, sales of mobile phones and wearable products fell by more than 30% year-on-year, dragging down revenue growth. Automated production line applications improve production efficiency, and gross profit margin rose to 26.6% from 23.4% in the same period last year.
In the future, we will focus on developing automobile mold business. In 2015, the company acquired a German branch, actively developed the German automobile mold business, and has developed a German automobile brand customer, and driven by this German business, the automobile business recorded an increase of 32.1% in the first half of this year. The management of the company believes that because the automobile mold is more complex and the engineering ability is higher, it can enjoy a higher gross profit margin, and the automobile industry accounts for a higher proportion of the industry in Europe and the United States, so the company will focus on developing this sector next. It is expected that the automobile mold sector will become the company's future performance growth point.
Our point of view: as a leading one-stop integrated injection molding solution provider, Dongjiang Group Holdings has rich experience in mold development and injection molding assembly production and mature technical level. The company's automotive mold business is expected to become a future performance growth point, the level of gross profit margin with the application of automatic production line and steadily improve. The current stock price is expected to be about 7-8 times PE for 2016 results, so investors are advised to keep a close eye on it.
Risk tips: sluggish demand, falling orders; intensified competition, falling gross margins of some products.