Main points of investment
The medium-term performance grew steadily and the gross profit margin increased significantly. Dongjiang Group Holdings announced 2017 interim operating results: revenue increased by 13.2% year-on-year to HK $816 million; gross profit increased by 38.2% to HK $263 million; gross profit margin rose 5.9 percentage points to 32.3% from 26.4% in the same period last year; net profit increased by 40.1% to HK $111 million per share, with an interim dividend of HK5 cents per share. The company's net profit increased significantly in mid-2017, benefiting from the increase in gross profit margin.
Strong growth in the four major sectors helped improve performance. In the first half of 2017, the global economy recovered, market demand boosted, and revenue in several business sectors of the company achieved strong growth. 1) mobile phones and wearable devices; 2) medical and personal care products; 3) automotive sector; 4) commercial communications equipment plate.
Intelligent and automated production greatly increases the level of gross profit margin. The company continues to develop in the direction of intelligent and large-scale production. The introduction of Industrial 4.0 flexible production line in 2015 has improved the production efficiency and stability of the production line. Full capacity utilization also makes the company qualified to select some businesses with high gross profit margin, which further promotes the level of comprehensive gross profit margin.
There are plenty of orders on hand, and the results are expected to maintain high growth in the second half of the year. At present, the company has plenty of orders-on-hand, reaching HK $764 million, an increase of 18.4 per cent over the same period last year. As the second half of the year is generally the peak season for consumer electronics sales, the company's performance is expected to maintain rapid growth in the second half of the year.
Our point of view: as a leading one-stop comprehensive injection molding solution provider, Dongjiang Group Holdings has made great efforts to expand its diversified industrial brand customers. At present, the company has abundant orders on hand, and capacity utilization continues to improve. Intelligent and automated production helps the comprehensive gross profit margin to continue to improve, and epitaxial mergers and acquisitions will help the company's performance to improve rapidly. We initially forecast that the current stock price will be about 10 times PE corresponding to the 2017 results, and we suggest that investors pay close attention to the progress of the company's mergers and acquisitions and major customer orders.
Risk tips: exchange rate fluctuation risk; intensified competition in the industry; loss of important customer orders.