We estimate that the company's EPS for 2018-2020 is HK $0.48, 0.63, 0.77 respectively, corresponding to a PE of 13.1, 10.0, and 8.2 times, maintaining a "buy" investment rating and a 12-month target price of HK $8.8. 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.
The performance is in line with expectations, and the new production line affects gross profit margin in the short term. The company realized HK $1.03 billion in revenue in the first half of 2018, an increase of 25.7% over the same period last year. The net profit attributable to the shareholders of the company was HK $140 million, an increase of 27.1% over the same period last year, and the basic profit per share was 16.9 cents, which was basically in line with our expectations. Gross profit margin fell 0.8 percentage points to 31.5% compared with the same period last year, mainly because the new production capacity is still in the early stage and the utilization rate is low. In the future, as the new production line enters the stable stage of mass production, the gross profit margin will be significantly improved.
Abundant orders, high growth in mobile phones and smart home products. As of June 30, 2018, the amount of orders placed by the company reached HK $920 million, an increase of 20.9% over the same period last year. The company's revenue growth in the first half of the year mainly came from mobile phones and wearable devices and smart home products, up 71.7 million and 65.1 million Hong Kong dollars respectively, up 45.1% and 145.3% respectively. The growth of mobile phone products mainly comes from orders for mobile phone protection cases, while the growth of wearable devices comes from the company's new customers of headphone products. The smart home industry completed the integration in the second half of last year, and the demand entered a stage of rapid growth.
Excellent financial situation, preparing for overseas expansion. In the first half of the year, the company's financial position remained stable, with inventory turnover days falling by 3 days to 87 days, and accounts receivable turnover days rising by 5 days to 52 days, achieving operating cash flow of HK $130 million and HK $400 million in cash on hand. In order to cope with the possible impact of the trade war, while enjoying lower labor costs, the company has planned to set up factories in Southeast Asian countries, and the company is also preparing its North American business office. the successful experience of winning orders from Apple Inc and Alphabet Inc-CL C in the past will help the company win more orders for high-end consumer electronics in the United States.
Risk hint: orders do not meet expectations and capacity expansion is postponed