Summary of meeting minutes; orders recovered strongly after COVID-19

The company guides pessimistic profit forecasts that break even for the whole year of 20. However, benefiting from the strong recovery of orders, the year-on-year growth of 36% / 15% in the second half of 20 / 21 is expected to be good for the whole year of 21. This is due to strong orders up to the first quarter of 21. As competitors in some countries (such as Malaysia) are affected by COVID-19 's production lines, business has been transferred to the Bangladesh factories of training Industries.

After COVID-19, the order recovered strongly:

Management expects sales to grow by about 24% year-on-year in the second half of 20, while benefiting orders will grow by about 36% (although average selling prices are down about 9%)

We estimate that overall sales in FY21 will grow by about 20% year-on-year because: (1) orders to March 21 have been filled (first three months of 21: estimated year-on-year growth of more than 15%); (2) low base effect (April-June 20 sales: estimated year-on-year decline of about 45%) profit margins and costs:

It is estimated that the mixed gross profit margin of 20x21 will be 23% / 29%, and the proportion of synthetic hair products will reach 61% picks 56% (estimated 58.0% picks up 46.6% in the first half of 20 / 19). Based on our expectation that the demand for human hair products will gradually pick up by the end of the second quarter of 21.

The overall number of employees increased by 13%, 14% year-on-year, and benefited from the relocation to Utra Export processing Zone, and we estimate that overall staff costs increased by only 6% year-on-year to HK $342 million / 363 million.

The planned capital expenditure for the second half of the year is approximately HK $15 million for office and plant refurbishment based on 11.5 times 21-year forecast price-to-earnings ratio, maintaining the long position rating and the target price of HK$1.7520 annual profit has been substantially written off, but 21Care 22 projected sales of HK $1.02 billion / 1.22 billion and net profit of HK $111 million / 141 million. This is only a few percentage points below our original forecast. We still believe in the story of consumption upgrading to human hair products. Therefore, we maintain long position and target price as HK$1.75.