Main points of investment
Annual income in the second half of the financial year fell 17.2 per cent, mainly affected by the COVID-19 epidemic and social movements in Hong Kong: the company announced its annual results for the year to March 2020, with revenues of HK $7.23 billion, or-3.9 per cent year-on-year, down 1 per cent after excluding the impact of exchange rates. Of this total, revenue in the second half of the fiscal year was HK $2.55 billion,-17.2 per cent year-on-year, down 15 per cent after excluding exchange rate effects. From a regional point of view, mainland China's income in the second half of the fiscal year was HK $1.26 billion, accounting for 49% of YoY-23%, mainly affected by the epidemic, especially in Wuhan; Hong Kong and Macao, China, accounted for HK $970 million in market revenue, with YoY-14%, accounting for 38%, mainly affected by intensified social movements and the epidemic; Australia and New Zealand accounted for HK $260 million in market revenue, with YoY-2%, accounting for 10% YoY+10%, accounts for 2 per cent of Singapore's market revenue of HK $63 million.
The decline in gross profit margin and the rise in fees led to a 99% decline in net profit in the second half of the fiscal year: the company's 2HFY20 realized a gross profit of 1.3 billion Hong Kong dollars,-21% year-on-year; gross profit margin 50.8%, year-on-year-2.3pcts, mainly due to weak sales and depreciation rose. The rate of sales expenses is from + 3.1pcts to 32.0% compared with the same period last year; the rate of management expenses is from + 2.8pcts to 13.4% compared with the same period last year; the upward trend of expenses is mainly due to the epidemic that channel costs and staff costs do not bring sales. Taken together, the profit attributable to 2HFY20 shareholders was HK $3 million,-99 per cent year-on-year.
Our view: the company's revenue in mainland China has returned to positive growth in May, and the recovery is faster than in other regions. We expect 1HFY21 mainland China to achieve low single-digit growth and 2HFY21 to achieve double-digit growth. The company's Dongguan plant is expected to be completed in 2020, and it is expected to build another plant in North China or West China to ensure remote expansion. We expect the company's FY2021/FY2022/FY2023 vested net profit of HK $609 million / HK $7.58 / HK $874 million, a compound growth rate of 17.7%. The company's strong products and strong brand in South China, the long-term logic of remote expansion has not changed, the worst time has passed, we maintain the target price of HK $34.19, corresponding to FY2021/22/23 's PE is 59x/48x/41x, maintain prudent overweight rating.
Risk tips: fierce competition in the industry; production capacity below expectations; slow recovery of demand
