We estimate that the company's EPS for 2018-2020 will be HK $0.48, 0.63, 0.77 respectively, corresponding to a PE of 13.1, 10.0 and 8.2 times, giving the company a "buy" investment rating for the first time and a 12-month target price of HK $8.80. The company has been included in the MSCI Hong Kong small cap index since June 1 this year. It is also a potential target of the Hong Kong Stock Connect, and its valuation still has room for expansion.
Technological advantages attract high-quality customers and diversified sources of income. By virtue of its strong design ability and product yield, the company continues to beat competitors to obtain customer orders, large products pay attention to complexity, small products pay attention to precision, so as to establish technical barriers higher than those in the same industry. The company has a wide range of downstream customer industries, including automobiles, home appliances, mobile phone accessories and wearable equipment, medical personal care products and other industries, the company has established good business relations with a number of internationally well-known enterprises. The diversification of customers greatly improves the company's ability to resist the risks of a single industry.
Capacity continues to be at full capacity, capacity expansion and acquisitions are in progress. The company's customer orders continue to grow. Apple Inc's orders are expected to grow by 30% this year and may double next year. The new orders are mainly wireless chargers. Apple Inc is expected to become the company's biggest customer next year. Orders from Philips are expected to grow 30 per cent this year, while orders for smart home products from google are expected to roughly double this year. The company's production capacity continues to be full. At present, the company leases a factory building of 10000 square meters in Dongguan and 20000 square meters in Huizhou as a temporary transitional use to meet the capacity demand. An application has been made to the Shenzhen Municipal Government for the construction of additional plants on existing land in 2017, which is expected to be completed in 2022. The company is also looking for acquisition targets to supplement injection molding production capacity.
The turnover of accounts receivable is fast and the cash flow is excellent. Most of the company's customers are foreign customers, but also the industry leader, the speed of payment is fast. In 2017, the turnover of accounts receivable is only 50 days, the operating cash flow is 400 million Hong Kong dollars, and the asset-liability ratio fell 18.4 percentage points to 10.7% in 2017. The company has excellent cash flow and low debt ratio. In 2017, the dividend payout rate reached 46.9%. In the future, the company will maintain a dividend payout rate of more than 30%.
Risk hint: orders do not meet expectations and capacity expansion is postponed
