We recently spoke with TK Group (TK)'s mgmt. post FY23 earnings, and mgmt. reiterated positive view on order restocking, new client wins, capacity ramp-up in Vietnam/Huizhou and business opportunities in automotive/ medical device/e- cigarette. Following a challenging 2023, we expect TK's net profit to grow 38%/19% YoY in FY24/25E, backed by order wins from VR/e-cigarette/medical device, mobile & wearable/communications business recovery, and continued operating efficiency improvement. We adjusted TP to HK$2.79 based on same 8.2x FY24E P/E. Trading at 4.4x FY24E P/E with 10% yield, we think the stock offers attractive risk/reward. Maintain BUY.

FY23 earnings dragged by weak demand in consumer electronics /communications. TK posted FY23 revenue/net profit decline of 15%/10% YoY, due to demand weakness in consumer electronics/communications segments (except automotive and e-cigarette products), partly offset by improved GPM to 26.4% (vs. 23.7% in FY22) on favourable FX and easing automotive upstream supply. By segment, 1) mobile & wearable (Apple, Otterbox, Jabra) dropped 15% YoY, 2) communications (Polycom) dropped 58% YoY, 3) smart home (Google, Amazon) dropped 43% YoY, 4) medical device (Philips) dropped 18% YoY, 5) automobile segment grew 23% YoY, and 6) other products grew 30% YoY (+63% YoY for e- cigarette). Projects-on-hand by FY23 amounted to HK$ 830.6mn (+2% YoY). Weakness in communications was mainly due to product call-back of key customers, and sales of major CE customers was impacted by inventory correction, while automotive segment benefited from easing shortage of auto supply chain.

FY24 Outlook: CE market recovery, new order wins and new capacity ramp-up. Backed by new order wins in earphones/medical device/e- cigarette/ automotive segments, inventory restocking and market recovery in consumer electronics, we expect TK's revenue/net profit to deliver 19%/ 38% YoY growth in FY24E. TK also issued special dividend in FY23, resulting in dividend payout ratio at 83%. Mgmt. expected to maintain high level of dividend payout ratio if no major investment takes place in FY24E.

Attractive valuation at 4.4x FY24E P/E and 10% yield; Maintain BUY. We adjusted our TP to HK$2.79 based on the same 8.2x FY24E P/E, in-line with 5-year historical forward P/E. Trading at 4.4x FY24E P/E, we think the stock is attractive considering 10% yield. Maintain BUY. Catalysts include Meta/Google/Amazon product launches, order ramp-up of medical device/e-cigarette customers and margin recovery.