There is a big difference in terminal market demand: the company released its 2019 annual report, with annual revenue of HK $3.64 billion, down 2.9% from the same period last year, and net profit of HK $539 million, an increase of 31.6% over the same period last year, with an adjusted net profit of HK $576 million. The downstream end markets show great differences. Of this total, revenue from the automotive sector was HK $1.64 billion, down 6.2% from the same period last year, mainly due to a slowdown in sales growth around the world, especially in China. In the industrial sector, revenue from construction machinery, hydraulic equipment and agricultural machinery fell by 15.8%, 19.5% and 14.1% respectively compared with the same period last year. Rolling sales of major customers Caterpillar Inc fell 11% in February 20 compared with the same period last year, including a decline of 17% in the Asia-Pacific region. There is some pressure on downstream demand. Overall revenue in the aviation and health care markets grew by 23%, which is relatively robust. The diversified demand structure downstream of the company and the ability of one-stop solutions effectively avoid volatility to the single market.
The overall trend of aviation business is upward: the company's core focus in the next few years is to enter aviation, medical and other high-profit-margin markets. Overall, the company's aviation business maintained a steady growth trend, with revenue of HK $344 million in 2019, a year-on-year increase of 22.1% and a compound growth rate of 28.7% in 15-19.
However, since last year, there have been a number of accidents on Boeing Co's 737Max aircraft, which has formed a certain pressure on the development of the company's aviation business in the short term. The company plans to spend HK $692 million on capital expenditure over the past 20 years, of which HK $1.05 is planned for aviation and medical markets. In addition, due to the trade war between China and the United States, the company has borne an additional tariff of 25.6 million Hong Kong dollars.
Profit forecast and investment rating: taking into account the fluctuations in terminal demand and some pressure on downstream destocking, we forecast that the company's revenue for 20-22 years will be HK $100 million in 37-40-44, and EPS will be HK $0.29,0.33 and HK $0.37 per share, respectively. The performance of comparable companies in Hong Kong has basically grown steadily. With reference to their average valuation, we give the company a reasonable valuation of 12 times PE in 2020, corresponding to a reasonable value of HK $3.48 per share, and maintain a "buy" rating.
Risk tips: Sino-US trade friction risk; end market cyclical changes due to macroeconomic impact; risk of rapid rise in raw material prices; overseas market business risk and exchange rate risk.
